Don’t be caught unaware – Andrew le Roux, Financial Mail Budget 2018
Corporate leaders need to formulate strategies to anticipate and deal with potential shocks.
Read the full budget speech here.
Today’s budget speech was more challenging than a number of recent occasions particularly as a result of the difficult economic circumstances (depressed commodity prices, drought) driving concerns of a downgrade in our credit rating. From a business perspective this significantly affects the cost of borrowing and therefore the range of investment opportunities in the country to help drive economic growth and provide employment opportunities.
The tax measures announced in the February 2016 budget were less detrimental to the SA consumer than feared. In reaction to the announcement, the FTSE/JSE ALSI reacted positively, regaining some lost ground to close 0.9% lower on Wednesday from 2.0% lower prior to the budget speech. In particular, the FTSE/JSE Industrials Index closed 0.1% down, despite trading 1.2% weaker prior to the budget speech, as the implication for consumption-related stocks was less negative than expected. In contrast, the FTSE/JSE Financials Index closed 1.8% weaker on the back of increased ratings downgrade concerns. Similarly, the rand fell by 2.3% against the US dollar, while bond yields (R186) sold off by 18 basis points.
Emerging market (EM) growth fragilities have intensified since the announcement of the Medium Term Budget Policy Statement (MTBPS) in October 2015, leading to further downgrades in global growth estimates. Consensus 2016 global GDP projections, as surveyed by Bloomberg, have fallen from 3.5% in October 2015 to 3.3% in February, led lower by a 0.4% downgrade of EM growth prospects to 4.5% over the period. Net commodity-exporting countries have in particular buckled under the pressure of falling commodity prices, flagging global trade activity and tighter financial conditions internationally.