Economist warns of threats to growth
July 22, 2009
By Ethel Hazelhurst
Headwinds facing the economy were stronger than expected, Rian le Roux, the chief economist at Old Mutual Investment Group South Africa, said yesterday. He had earlier forecast a recovery in the second half of the year, in line with the global business cycle, but he now sees a recovery only next year.
He forecast the economy would shrink by 2 percent this year and grow only 2 percent next year, despite the additional activity related to the soccer World Cup.
"Inflation has remained higher for longer (than expected), consumers' finances continue to be under pressure, the strong rand is hurting our manufacturing and mining exports and the 4.5 percentage point cut in interest rates, since December, has been offset by a number of factors, including banks' tight lending standards and effective tax increases through higher municipal rates and electricity tariffs."
While these are the immediate constraints on economic growth, he identified factors that could prevent the economy growing at what is assumed is its full potential of 4 percent a year. They include poor global competitiveness, with exports remaining flat as a percentage of gross domestic product (GDP), while the ratio of imports is soaring; the skills shortage; poor public sector delivery; low savings; a strong rand; and the demise of gold mining, which is countering growth in other mining sectors.
While growth prospects are poor, the outlook for inflation is no better.
He said globally fears were again focused on rising inflation where a few months ago they were on deflation. And he said the local medium-term inflation outlook was "less than rosy".
Consumer inflation was unlikely to fall under the Reserve Bank's 6 percent target ceiling this year. "The government's potential budget deficit is an added concern." - Ethel Hazelhurst
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