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Performance through Focus
Quarterly Press Conference
27 January 2009
2009 OUTLOOK:INVESTING IN ASLOW-GROWTH WORLD
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Economic Outlook: Rian le RouxChief Economist, OMIGSA
“The global slowdown and its impact on SA”
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SA closely linked to the global economic cycleFit has tightened since the end of isolation from early 90’s
Source: SA Reserve Bank
-10
0
10
20
-20
30
-10
0
10
20
-20
30
63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08
SA leading indicatorsTrading partner leading indicators
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Transmission mechanism from global to SA via commodity prices, export volumes, rand and interest rates
SA’s big 4 commodity export price index, % ch
Trading partner leading indicators, % ch
-10
0
10
-15
15
-50
0
50
-75
75
86 89 92 95 98 01 04 07 10
4
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SA export volumes & global GDP growth
SA export volume growth (ex gold)World GDP growth
0
5
-5
10
0
10
-10
20
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
5
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SA car exports: Global slump starting to show
0
10
20
30
40
0
10
20
30
40
95 97 99 01 03 05 07 09
000’s per month
6
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SA interest rates and the global cycleEarly rise in local rates probably prevented an acute rate crunch
Prime rate
Trading partner leading indicators
0
10
20
-10
30
0
10
20
-10
30
85 88 91 94 97 00 03 06 09
7
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Current account deficit remains a risk to the rand and interest rate outlook
Current account as % of GDP
-5
0
5
-10
10
-5
0
5
-10
10
85 87 89 91 93 95 97 99 01 03 05 07 09
8
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▲ Deep and broad-based recession (across sectors and economies):- Some really shocking real economy numbers
- Round 2 of the financial crisis?
▲ Classic forecasting error occurring: - Trend predicted correctly (downturn), extent hugely underestimated
- Causing ongoing financial market concern
Current global picture
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Japan machinery orders, yen trn
Some shocking numbers reflect the unexpected severity of the global slump
800
1000
1200
600
1400
90 92 94 96 98 00 02 04 06 08 10
US retail sales, nominal $ bn
Total: -10% from peakEx autos/gas: -4½% from peak
200
300
400
100
450
90 92 94 96 98 00 02 04 06 08 10
10
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Global trade collapsesExternal trade growth
USA
ExportsImports
China
ImportsExports
-10
0
10
20
30
40
50
-20
60
98 00 02 04 06 08
-10
10
20
-20
30
0
98 00 02 04 06 08
11
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G7 Developing world
GDP forecasts for 2008 & 2009Despite deep forecast cuts, risks remain to the downside
-2
0
2
4
6
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
-2
7
Economist survey
2008
2009
2008
2009
0
2
4
6
-2
7
07 08 0907 08 09
12
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World GDP & consensus forecasts
% ch
Developed WorldEmerging economies
0.0
2.5
5.0
7.5
-2.5
10.0
0.0
2.5
5.0
7.5
-2.5
10.0
80 83 86 89 92 95 98 01 04 07 10
13
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Current global picture
From inflation worries to deflation panic
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Global inflation: falling fast
Y-o-y % change
GermanyUKUSAItalyFranceSweden
GreeceJapanSwitzerlandBelgiumAustralia
Canada
0
2
6
-2
8
4
06 07 08 09
Y-o-y % change20Russia
EstoniaSaudi Arabia
TurkeyIsraelChina
BrazilThailand
Malaysia
Singapore
SAMexico
0
5
10
15
-506 07 08 09
15
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Current global picture
Policymakers pulling out all the stops
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Rates cut aggressively over a broad frontFiscal packages close to 2% of Global GDP
EuroUSAUKAustraliaJapan
0
10
-10
20
90 93 96 99 02 05 08
PolandChina
KoreaHong Kong
SA
0
10
20
-10
30
90 93 96 99 02 05 08
17
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Current global picture
▲ Key questions:- Will it work?- If so, when will things start to stabilise?- How deep the downturn in the meantime?: Big worries here
▲ History suggests that sudden & deep slumps are typicallyfollowed by sharp recoveries – will this one be different?
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Recoveries, when they come, can be quickSignificant obstacles this time, but surprise potential is risingRisk is more severe weakness first
US employment (% change)
0
5
-5
10
0
5
-5
10
51 56 61 66 71 76 81 86 91 96 01 06 11
19
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World GDPConsensus forecasting reasonable recovery in 2010
% change
Developed WorldEmerging economies
0.0
2.5
5.0
7.5
-2.5
10.0
0.0
2.5
5.0
7.5
-2.5
10.0
80 83 86 89 92 95 98 01 04 07 10
20
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SA Outlook for 2009
▲ No escaping the global downturn, but SA is partly isolated:- No local financial sector crisis or serious credit crunch
- Exchange rate lends welcome protection
- Infrastructure drive will lend crucial support to the economy
- Falling inflation will boost real household incomes
- Lots of policy firepower available (monetary and fiscal) ▲ Difficult conditions in H1:
- Some sectors in deep recession (motor, residential construction, mining, exporters, small business)
▲ Some improvement in H2:- Lower interest rates, lower petrol price, lower general inflation & fiscal measures should support consumer spending- Government infrastructure drive to maintain momentum
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Downside risks can not be ignored, though
▲ Severe export slump
▲ Private investment slump
▲ Job shedding
▲ Rand slump
▲ Policy error
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SA vs Global GDP growthNo escaping the global slump, but SA a little better protected this time
World GDP growth SA GDP growth
-5
0
5
-6
10
-5
0
5
-6
10
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
23
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Welcome support from investment
World GDP growth SA GDP growth Investment growth
-10
0
10
-20
20
-10
0
10
-20
20
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
24
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Welcome support from investment
Public sector investment growth
World GDP growth SA GDP growth Investment growth
-10
0
10
20
-20
30
-10
0
10
20
-20
30
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
25
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SA Inflation picture
CPIX petrol
CPIX
CPIX excl food & petrol
Food
-10
0
10
20
30
-20
40
-10
0
10
20
30
-20
40
00 02 04 06 08
26
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SA Inflation outlook
CPIX petrol
Food
CPIX
CPIX excl food & petrol
-10
0
10
20
30
-20
40
-10
0
10
20
30
-20
40
00 02 04 06 08
27
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Food inflation: Stabilising?
Stats SAERU
Y-o-y % change
-10
0
10
20
30
40
-20
50
-10
0
10
20
30
40
-20
50
95 97 99 01 03 05 07 09
28
Meat, vegetables & fruitMeat, vegetables & fruit
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Inflation forecast
Forecast with new weights & rebasing Assumptions:
Rand: 9.75 end ’09 Oil: $60/bbl end ’09 Food: 8% end ’09 Eskom: 30% ’09; 30% ‘10
4
6
8
10
12
2
14
4
6
8
10
12
2
14
97 99 01 03 05 07 09
29
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Interest rate outlook350 bps of cuts in the cycle – risk is faster & more cuts
Prime rate & Base Case forecast Alternative Scenario
0
5
10
15
20
25
30
0
5
10
15
20
25
30
90 92 94 96 98 00 02 04 06 08 10
30
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SA Macro forecasts for 2008-2010
updated : 07.01. 2009
Indicator 2004 2005 2006 2007 2008 2009 2010
HCE 6.7 6.9 8.2 7.0 2.7 1.0 3.0
GFCF 8.9 8.9 13.8 16.3 12.0 5.0 5.5
GDP 4.9 5.0 5.4 5.1 3.2 1.5 3.0
C/A : GDP -3.2 -4.0 -6.5 -7.3 -7.8 -5.5 -5.0
R/$ : y/e 5.64 6.33 6.99 6.84 9.39 9.75 9.85
CPIX : y/e 4.3 4.0 5.0 8.6 10.3 5.2 4.5
Prime : y/e 11.00 10.50 12.50 14.50 15.00 12.50 12.00
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Performancethrough FocusRegulatory Information
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Old Mutual Investment Group (South Africa) (Pty) Limited Physical Address: Mutualpark, Jan Smuts Drive, Pinelands, 7405 Telephone number: +27 21 509 5022
Old Mutual Investment Group (South Africa) (Pty) Limited is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Investment Group is a wholly owned subsidiary of Old Mutual (South Africa) Limited. Reg No 1993/003023/07.
The investment portfolios may be market-linked or policy based. Investors’ rights and obligations are set out in the relevant contracts. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance.
Personal trading by staff is restricted to ensure that there is no conflict of interest. All directors and those staff who are likely to have access to price sensitive and unpublished information in relation to the Old Mutual Group are further restricted in their dealings in Old Mutual shares.
All employees of Old Mutual Investment Group are remunerated with salaries and standard short-term and long-term incentives. No commission or incentives are paid by Old Mutual Investment Group to any persons. All inter-group transactions are done on an arms lengths basis.
In respect of pooled, life wrapped products, the underlying assets are owned by Old Mutual Life Assurance Company (South Africa) Limited who may elect to exercise any votes on these underlying assets independently of Old Mutual Investment Group. In respect of these products, no fees or charges will be deducted if the policy is terminated within the first 30 days. Returns on these products depend on the performance of the underlying assets.
Old Mutual Investment Group has comprehensive crime and professional indemnity insurance. For more detail, as well as for information on how to contact us and on how to access information please visit www.omigsa.com.