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Johannesburg - The government is expected to aim for a budget deficit of 4.6% of gross domestic product (GDP) for the fiscal year ending in March 2012, in line with its previous forecasts, according to a median of predictions from ten economists polled by Reuters.
Forecasts for the budget target range from a deficit of 5.1% to a deficit of 3.9%. The target is expected by analysts to be set at a deficit of 3.7% of GDP in 2012/13.
In a medium-term budget policy statement in October, Finance Minister Pravin Gordhan projected a shortfall of 4.6% of GDP for 2011/12, and 3.9% for the following year.
By 2013/2014, he said, the deficit should drop to 3.2% as the economy recovers from a 2009 recession.
President Jacob Zuma said last week that the deficit would drop to between 3% and 4% by 2013.
Factors to watch
Economic growth has been picking up since 2009, and the consumer spending that underpinned strong pre-crisis growth is also recovering, but Gordhan is unlikely to make major changes to his forecast of a 3.5% GDP expansion for this year.
He is more likely to raise his inflation prediction from its current 4.7% average for the year to reflect the acceleration in CPI seen in January, when inflation quickened to 3.7% from 3.5% in December.
On the other side of the budget equation, Gordhan is under pressure to boost welfare spending, most notably to try to tackle unemployment running at nearly 25%.
In his State of the Nation address last week, Zuma outlined R39bn for job creation as well as manufacturing and employment investment, but the speech contained few specifics.
Zuma said R20bn would go in tax breaks to manufacturing firms, R10bn to the state-run Industrial Development Corporation to invest in employment-intensive sectors, and R9bn to a new jobs fund.
In his budget speech, Gordhan may express continued support for the central bank in its foreign exchange intervention to curb the strength of the rand, which has gained nearly 23% against the dollar since the start of 2009.
But analysts think Gordhan is unlikely to introduce more administrative measures at this stage to weaken the rand, such as a further relaxation of curbs on South Africans investing overseas. An 8.5% drop in the rand this year, due in part to increased central bank dollar-buying, has eased pressure.
Market impact
If the planned deficit comes in wider than expected, it will put pressure on bonds. However, selling pressure is in any case likely to be light if Gordhan outlines a clear path to cutting the shortfall to around 3% of GDP by 2014.
Technically, bond yields appear to have little room to rise. The yield on the benchmark 2015 bond R157 at 7.71% on Friday morning, has repeatedly tested and held support around 7.90% since late January. The yield on the 2026 note R186, last at 8.65%, has been consolidating in a well-defined range between 8.60% and 8.80%.
A wider gap could also weigh on the rand exchange rate. Once again, however, the rand appears to have little downside technically in the short term; at R7.1980/$ on Friday, it broke this week above a six-week downtrend channel, while rising momentum on daily charts also suggests the rand has bottomed out.
Forecasts for the budget target range from a deficit of 5.1% to a deficit of 3.9%. The target is expected by analysts to be set at a deficit of 3.7% of GDP in 2012/13.
In a medium-term budget policy statement in October, Finance Minister Pravin Gordhan projected a shortfall of 4.6% of GDP for 2011/12, and 3.9% for the following year.
By 2013/2014, he said, the deficit should drop to 3.2% as the economy recovers from a 2009 recession.
President Jacob Zuma said last week that the deficit would drop to between 3% and 4% by 2013.
Factors to watch
Economic growth has been picking up since 2009, and the consumer spending that underpinned strong pre-crisis growth is also recovering, but Gordhan is unlikely to make major changes to his forecast of a 3.5% GDP expansion for this year.
He is more likely to raise his inflation prediction from its current 4.7% average for the year to reflect the acceleration in CPI seen in January, when inflation quickened to 3.7% from 3.5% in December.
On the other side of the budget equation, Gordhan is under pressure to boost welfare spending, most notably to try to tackle unemployment running at nearly 25%.
In his State of the Nation address last week, Zuma outlined R39bn for job creation as well as manufacturing and employment investment, but the speech contained few specifics.
Zuma said R20bn would go in tax breaks to manufacturing firms, R10bn to the state-run Industrial Development Corporation to invest in employment-intensive sectors, and R9bn to a new jobs fund.
In his budget speech, Gordhan may express continued support for the central bank in its foreign exchange intervention to curb the strength of the rand, which has gained nearly 23% against the dollar since the start of 2009.
But analysts think Gordhan is unlikely to introduce more administrative measures at this stage to weaken the rand, such as a further relaxation of curbs on South Africans investing overseas. An 8.5% drop in the rand this year, due in part to increased central bank dollar-buying, has eased pressure.
Market impact
If the planned deficit comes in wider than expected, it will put pressure on bonds. However, selling pressure is in any case likely to be light if Gordhan outlines a clear path to cutting the shortfall to around 3% of GDP by 2014.
Technically, bond yields appear to have little room to rise. The yield on the benchmark 2015 bond R157 at 7.71% on Friday morning, has repeatedly tested and held support around 7.90% since late January. The yield on the 2026 note R186, last at 8.65%, has been consolidating in a well-defined range between 8.60% and 8.80%.
A wider gap could also weigh on the rand exchange rate. Once again, however, the rand appears to have little downside technically in the short term; at R7.1980/$ on Friday, it broke this week above a six-week downtrend channel, while rising momentum on daily charts also suggests the rand has bottomed out.
