Economic update

2016-06-09 06:00

South Africa’s budget deficit narrows

FIGURES released by Treasury indicate a budget deficit of R29 billion for April compared to a deficit of R41 billion in April. The budget deficit represents the excess of government expenditure over government income during a given period. The narrowing of the April year on year deficit is timely but may not be sufficient to positively impact pending ratings agency decisions.

Cumulative budget deficits reflect in national debt which, according to most estimates, is sitting at around 50% of the GDP. High levels of national debt impact the value of the Rand which in turn makes national borrowings more expensive. Gross domestic product (GDP) growth for the fourth quarter of 2015 was revised downwards to 0.4%. GDP is an indicator of economic growth which in turn has a direct impact on the creation of employment. Current growth figures are substantially below the national target of 5% leading to pessimism in many circles about the ability of the country to create jobs.

Producer price inflation (PPI) eased marginally to seven percent in April from 7.1% the month before. PPI measures price increases “at the factory gate”. This remains below market expectations of 7.3% but the full impact of the drought and the weak rand are yet to be fully factored in.

Inflation rates are the primary driver of interest rates, but expectations are that the SA Reserve Bank will maintain rates in the short term.

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