Money
Issue No. 35 - June/July 2007
Sweet and sour in Budget brew
Federal Budget implications for the SA economy
Darryl Gobbett
Chief Economist, Prescott Securities
The SA economy, with its increasing exposure to the mining boom and wide open spaces, is well placed to benefit from the initiatives announced in the 2007 Federal Budget.
The Budget has a range of positive implications for the State's micro, small and large-sized businesses. And with its strong focus on improving infrastructure in particular, it should provide significant spin-off benefits to the local mining sector and related industries.
On the whole, the Budget provides a glowing outlook with interest rates and inflation unlikely to rise significantly over the coming financial year and company earnings growth to remain solid.
Inflation is expected to remain within the Reserve Bank's 2% to 3% target range well into 2009. This points to the next move on interest rates being more likely to be down than up, possibly in early 2008.
Tax cuts and major spending initiatives outlined in the Budget are also likely to help fuel growth in consumer and business activity in SA.
The international outlook for overall steady economic expansion, but with 8% to 10% growth in China and India, means commodity prices are expected to stay firm. This will assist the mining sector exploration and new development which are increasingly important to SA.
While the focus has been on metals and energy, rural commodity prices are lifting. US farmers are planning the biggest corn crop since World War II while the International Monetary Fund estimates Europe will have to increase its crop area by 18% to meet mandated targets.
Strong commodity prices mean the Australian dollar is likely to stay in the mid US80c range for some time to come which has implications for SA's exporters and import-competing businesses particularly in the wine, manufacturing and automotive in...
