Mini Budget Speech
30 October 2017 - a Week in Perspective
Mini Budget Speech
Minister of Finance Malusi Gigaba confirmed that South Africa was facing a severe revenue shortfall when he delivered his maiden mini budget speech this past Wednesday. According to the Minister, the budget deficit would widen to 4.3% of GDP in 2017/18, far higher than the target of 3.1% set in February.
Treasury expects the economy to grow 0.7% this year, down from 1.3% predicted in the February budget. Tax revenue for this fiscal year will fall R50.8bn short of the initial forecast. The rand weakened to an 11-month low following Minister Gigaba’s mini budget speech, trading around R14.08 against the USD, which is 3.36% weaker than a week before. The currency traded at R14.26 against the US dollar on Thursday.
Equity markets responded as follows to the Minister’s speech and the weaker rand: the all-share index (alsi) closed 1.32% higher at 58714.04 points, driven by the major rand-hedge shares; the industrial and resources sectors gained 2.47% and 2.27% respectively; and the financial sector lost 1.82%. The market interpreted the weaker growth to have a negative impact on banks. The local bond market sold off strongly in response to the news from parliament, as another ratings downgrade looms.
In Europe, the European Central Bank (ECB) delivered what many in the markets had been hoping for. The ECB will buy €30 billion worth of European bonds each month starting in January and ending in September, that is halve the current buying pace of €60 billion a month.
The US economy grew at a faster-than-forecast pace of 3% in the third quarter, handily beating 2.5% forecasts. Real consumer spending showed continued strength this past quarter, rising 2.4% and exceeding forecasts of a 2.2% advance. Core inflation remained well below the US Federal Reserve’s 2% target, coming in steady at 1.3%.
At the conclusion of a weeklong congress of China’s Communist Party, Xi Jinping was elected to a second term as president.
In the week ahead markets should find some stability after the turmoil of the past week.
SECURITAS – Wealth Management
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