1 00:00:00,080 --> 00:00:02,800 Speaker 1: Johan Else is the chief economist at the PSG group. 2 00:00:03,080 --> 00:00:05,120 Speaker 1: You Hun good evening, and thank you for your time. 3 00:00:05,600 --> 00:00:08,039 Speaker 1: So we have a task team. Are there really any 4 00:00:08,080 --> 00:00:11,240 Speaker 1: options for government to try and lessen the pain? I 5 00:00:11,320 --> 00:00:15,480 Speaker 1: can't have. I can't think of anything obvious, Bi. 6 00:00:15,440 --> 00:00:19,759 Speaker 2: Stephen Good evening. Yeah, you know, I think back to 7 00:00:19,800 --> 00:00:23,479 Speaker 2: the president that was created in twenty twenty two when 8 00:00:25,079 --> 00:00:28,080 Speaker 2: government also cut the fuel levy for a few months, 9 00:00:28,440 --> 00:00:30,760 Speaker 2: cut the fuel levy by one round fifty per liter 10 00:00:31,240 --> 00:00:32,600 Speaker 2: for three months in a row. 11 00:00:34,760 --> 00:00:37,440 Speaker 1: So we could do that, but presumably that money has 12 00:00:37,440 --> 00:00:41,320 Speaker 1: to come from somewhere. The pandemic scrambled many things in 13 00:00:41,360 --> 00:00:44,400 Speaker 1: government finances. I mean, and even if we did cut 14 00:00:44,400 --> 00:00:46,000 Speaker 1: the fuel levy a little bit, would it make much 15 00:00:46,040 --> 00:00:48,760 Speaker 1: difference considering the scale of this increase diesel probably ten 16 00:00:48,800 --> 00:00:49,320 Speaker 1: around a liter. 17 00:00:50,520 --> 00:00:57,480 Speaker 2: Yeah, so I think that specifically, because they budgeted very 18 00:00:57,520 --> 00:01:01,720 Speaker 2: conservatively in this past budget for revenue from mining taxes, 19 00:01:01,920 --> 00:01:04,240 Speaker 2: I think there is some room in the budget without 20 00:01:04,280 --> 00:01:08,960 Speaker 2: breaking the previously assumed budget balanced numbers and the debt 21 00:01:09,080 --> 00:01:12,400 Speaker 2: ratio numbers. I did some calculations this often, and if 22 00:01:12,440 --> 00:01:14,600 Speaker 2: they cut the fuel levy by two rand a liter 23 00:01:14,720 --> 00:01:17,640 Speaker 2: for two months, that's around eight and a half billion 24 00:01:17,720 --> 00:01:21,839 Speaker 2: round worth of cost that they will forego. Now, in 25 00:01:22,480 --> 00:01:25,360 Speaker 2: twenty twenty two, the cost was around ten and a 26 00:01:25,360 --> 00:01:28,200 Speaker 2: half billion. They've got that money through selling some of 27 00:01:28,240 --> 00:01:31,560 Speaker 2: the strategic fuel reserves. This time around, we haven't got 28 00:01:31,560 --> 00:01:34,280 Speaker 2: a lot there, I assume, But as I say, the 29 00:01:34,319 --> 00:01:37,920 Speaker 2: budget was very conservative, so there's some room in the budget. 30 00:01:38,160 --> 00:01:42,080 Speaker 2: And while it's still a big hefty increase, if we 31 00:01:42,160 --> 00:01:46,319 Speaker 2: then sit with four rant a litera increase, I think then, 32 00:01:47,440 --> 00:01:51,520 Speaker 2: according to my numbers, inflation in April jump to three 33 00:01:51,520 --> 00:01:54,680 Speaker 2: point seven percent and not four point two, which would 34 00:01:54,720 --> 00:01:57,640 Speaker 2: have been the case with a six rand increase, And 35 00:01:57,960 --> 00:02:01,800 Speaker 2: I think that's almost the difference between an imminent rate 36 00:02:01,920 --> 00:02:05,040 Speaker 2: hike or not. So I think we will give the 37 00:02:05,080 --> 00:02:08,839 Speaker 2: consumers a little bit of leeway, not much, but some, 38 00:02:09,240 --> 00:02:11,400 Speaker 2: but it will make a material difference in terms of 39 00:02:11,400 --> 00:02:15,960 Speaker 2: the inflation numbers, and perhaps we won't need an interest 40 00:02:16,080 --> 00:02:17,799 Speaker 2: rate hike in the. 41 00:02:17,840 --> 00:02:20,639 Speaker 1: Cycle and all of the consequences of that all at 42 00:02:20,639 --> 00:02:23,560 Speaker 1: the same time, one of the things government's been very 43 00:02:23,600 --> 00:02:26,120 Speaker 1: clear to do, and the Finance has been very clear on, 44 00:02:26,280 --> 00:02:29,320 Speaker 1: is trying to reduce our debt now in a situation 45 00:02:29,600 --> 00:02:33,160 Speaker 1: like this, does that really matter? I mean, debt always matters, obviously, 46 00:02:35,320 --> 00:02:37,760 Speaker 1: but in terms of how people view our debt, you know, 47 00:02:37,800 --> 00:02:40,880 Speaker 1: everyone was so excited we were beginning to reduce it. 48 00:02:41,480 --> 00:02:45,120 Speaker 1: In a situation like this, I would imagine most international 49 00:02:45,160 --> 00:02:48,440 Speaker 1: people watching US would completely understand a government trying to 50 00:02:48,480 --> 00:02:50,960 Speaker 1: stay more for an interest rate hike and doing it 51 00:02:50,960 --> 00:02:53,400 Speaker 1: in a very responsible way if it were done correctly. 52 00:02:54,639 --> 00:02:58,800 Speaker 2: Absolutely, I agree with you. I think find investors, writings, agencies, 53 00:02:58,840 --> 00:03:00,600 Speaker 2: et cetera. I would see this in the light of 54 00:03:00,680 --> 00:03:03,919 Speaker 2: the crisis that has been created by this Middle East war, 55 00:03:05,040 --> 00:03:09,519 Speaker 2: other countries going through similar situations trying to lessen the 56 00:03:09,560 --> 00:03:14,120 Speaker 2: impact on consumers. I think, yeah, we don't know, As 57 00:03:14,120 --> 00:03:16,040 Speaker 2: you said earlier in the previous interview, we don't know 58 00:03:16,040 --> 00:03:18,040 Speaker 2: how long this will last. But I think there's lots 59 00:03:18,080 --> 00:03:21,480 Speaker 2: of pressure on the US government internally and externally to 60 00:03:21,639 --> 00:03:25,160 Speaker 2: end US as quickly as possible. Still, if they managed 61 00:03:25,200 --> 00:03:28,680 Speaker 2: to lessen the impact on South African consumers for a 62 00:03:28,680 --> 00:03:31,440 Speaker 2: couple of months before reverting that fuel levy to the 63 00:03:31,480 --> 00:03:35,560 Speaker 2: normal level, and we then get a somewhat lower inflation outcome, 64 00:03:35,960 --> 00:03:38,000 Speaker 2: and then were only in terms of interest rates, we 65 00:03:38,080 --> 00:03:41,920 Speaker 2: see a delay in further cuts and not the need 66 00:03:42,040 --> 00:03:44,720 Speaker 2: for a high I think tacking all of that together, 67 00:03:45,040 --> 00:03:49,280 Speaker 2: I think fine investors, ratings, agencies, everybody would see that 68 00:03:49,280 --> 00:03:51,120 Speaker 2: that's the better outcome. 69 00:03:51,520 --> 00:03:55,400 Speaker 1: Yeah, very much, sir. I've got two extreme scenarios for you, 70 00:03:55,440 --> 00:03:58,320 Speaker 1: one better than the other. Yan. I mean, as you 71 00:03:58,560 --> 00:04:01,200 Speaker 1: as everyone has probably gone to say, until this thing ends, 72 00:04:01,240 --> 00:04:03,560 Speaker 1: no one knows what's going to happen. But the president 73 00:04:03,640 --> 00:04:06,720 Speaker 1: of Egypt today said, if it doesn't end soon, we 74 00:04:06,760 --> 00:04:10,120 Speaker 1: could end up with oil at two hundred dollars a barrel. 75 00:04:11,840 --> 00:04:13,840 Speaker 1: I mean, it's the probably things you don't want to 76 00:04:13,840 --> 00:04:15,760 Speaker 1: think about. But what happens to our economy if it 77 00:04:15,840 --> 00:04:18,120 Speaker 1: goes that far? I mean, do we have an economy 78 00:04:18,120 --> 00:04:18,960 Speaker 1: if it goes that far? 79 00:04:20,200 --> 00:04:23,560 Speaker 2: Yeah? Well, it's it's same as previous scenarios when we 80 00:04:23,600 --> 00:04:26,920 Speaker 2: saw significant spike in the oil price, whether that's a two, 81 00:04:27,279 --> 00:04:30,839 Speaker 2: one and fifty, I don't think really matters. I think 82 00:04:31,000 --> 00:04:34,840 Speaker 2: what happens immediately you see a global slump, You see 83 00:04:34,880 --> 00:04:37,960 Speaker 2: recession globally because oil is a big cost input not 84 00:04:38,080 --> 00:04:40,919 Speaker 2: only for business but for consumers as well, So everybody 85 00:04:41,160 --> 00:04:44,719 Speaker 2: cuts back on spending. That causes a recession. But that 86 00:04:44,839 --> 00:04:49,080 Speaker 2: demand slump then immediately causes the oil price to collapse. 87 00:04:49,360 --> 00:04:51,400 Speaker 2: So in the past, and when you look at the 88 00:04:51,440 --> 00:04:53,960 Speaker 2: oil price cycles, whenever you've seen a spike like this, 89 00:04:54,760 --> 00:04:58,760 Speaker 2: pretty soon oil just collapses. But of course that creates 90 00:04:58,839 --> 00:05:02,560 Speaker 2: lots of volatility, it creates recessions. But then central banks 91 00:05:02,560 --> 00:05:06,640 Speaker 2: starts cutting rates pretty soon because of that weak demand, 92 00:05:06,960 --> 00:05:10,520 Speaker 2: the negative impact, and if we take that step further, 93 00:05:11,120 --> 00:05:14,560 Speaker 2: the big increase in petrol prices we discussed. Whether it's 94 00:05:14,600 --> 00:05:19,400 Speaker 2: four or six doesn't matter, but that's almost a deflationary scenario. 95 00:05:19,640 --> 00:05:23,359 Speaker 2: We pay more for petrol, but we've got less to 96 00:05:23,480 --> 00:05:26,359 Speaker 2: pay for other things or buy other things, so there 97 00:05:26,560 --> 00:05:30,280 Speaker 2: downward pressure on other prices. Yes, there's a risk that 98 00:05:30,440 --> 00:05:34,799 Speaker 2: reserve bank sets with that. It creates higher inflation expectations. 99 00:05:35,360 --> 00:05:39,760 Speaker 2: But in terms of your question, volatility like that creates 100 00:05:39,839 --> 00:05:43,000 Speaker 2: lots of uncertainty, It creates a recession. Central banks step in, 101 00:05:43,360 --> 00:05:47,520 Speaker 2: so economies markets lots of volatility, but then we revert 102 00:05:47,600 --> 00:05:50,560 Speaker 2: quickly back to where we were before. 103 00:05:50,920 --> 00:05:53,200 Speaker 1: And the other side of the war stops tomorrow, and 104 00:05:53,279 --> 00:05:57,360 Speaker 1: who knows. I presume oil prices don't go back to normal. 105 00:05:58,040 --> 00:06:00,880 Speaker 1: It would take some time to restore faith and markets. 106 00:06:01,120 --> 00:06:04,000 Speaker 1: But I imagine quite difficult to know a month, two months, 107 00:06:04,040 --> 00:06:04,919 Speaker 1: who knows. 108 00:06:05,200 --> 00:06:07,039 Speaker 2: Now. Part of that scenario should, of course, as you 109 00:06:07,040 --> 00:06:10,120 Speaker 2: said earlier, be complete opening of the Strait of Homoves. 110 00:06:10,160 --> 00:06:11,919 Speaker 2: But let's assume that happens. So I think the ol 111 00:06:12,000 --> 00:06:16,479 Speaker 2: price will fall pretty quickly. Part of this significant increase 112 00:06:16,760 --> 00:06:20,320 Speaker 2: has been because trade is buying up lots of oil, 113 00:06:20,440 --> 00:06:24,000 Speaker 2: and then if suddenly there's no need and they start selling, 114 00:06:24,080 --> 00:06:28,480 Speaker 2: and then suddenly there's a lot of excess supply, whereas 115 00:06:28,520 --> 00:06:30,920 Speaker 2: demand has been weakened somewhat. I think the oil price 116 00:06:30,960 --> 00:06:33,039 Speaker 2: could actually fall back right back to sixty. 117 00:06:34,240 --> 00:06:36,480 Speaker 1: Sure. Imagine there'll be a show and then. 118 00:06:36,400 --> 00:06:39,160 Speaker 2: Petrol prices and then petrol prices coming off as well. 119 00:06:39,320 --> 00:06:42,120 Speaker 2: If again, if we can look to twenty twenty two, 120 00:06:43,000 --> 00:06:46,880 Speaker 2: in January, petrol prices was nineteen ran something eliter. It 121 00:06:46,960 --> 00:06:50,800 Speaker 2: went up to twenty six by July, and then by 122 00:06:50,800 --> 00:06:52,520 Speaker 2: the end of the year it was back at twenty 123 00:06:53,440 --> 00:06:54,919 Speaker 2: and that wall is still ongoing. 124 00:06:55,680 --> 00:06:58,480 Speaker 1: Indeed, Johan else, thank you that we ended with a 125 00:06:58,520 --> 00:07:01,720 Speaker 1: more cheerful scenario. The chief economist of the PSG Group 126 00:07:01,760 --> 00:07:01,880 Speaker 1: are