Survey shows more confidence in local economy
August 7, 2009
By Phumza Macanda
South African economic confidence rose last month on the back of an expected mild economic recovery next year and lower inflation, the Reuters Econometer showed yesterday.
The Econometer rose to 248.17 in July, bouncing from a nine-month low of 242.69 in June. The measure showed that while the economy would contract this year, forecasts for next year's recovery were better than previous expectations.
South Africa's economy slid into recession in the first quarter, with gross domestic product falling at a 6.4 percent annual rate - its biggest decline since 1984. July's poll showed the economy would shrink by 1.89 percent this year while long-term prospects were more optimistic than previous forecasts, with 2.16 percent and 3.7 percent growth for next year and 2011 respectively.
"About half a percentage point of growth next year comes directly from the impact of the soccer World Cup," said Elna Moolman, an economist at Barnard Jacobs Mellet.
"We will also start to see the impact of policy stimulus... although growth will still be below potential," she said, adding consumer demand would recover slightly, in part due to the effects of interest rate cuts since December last year.
There was still a slight chance of further monetary loosening this year, while interest rate rises next year would not be as high as previously expected, the poll suggested.
The Reserve Bank left the repo rate unchanged at 7.5 percent in June, citing inflation concerns.
The poll put the repo rate at a mean of 7.19 percent by the end of this year - lower than last month's expectation - and rising to 7.33 percent by the end of next year and 8.12 percent in 2011.
Inflation was seen coming down faster, easing pressure on consumers who were contending with higher prices, heavy debt and falling income.
Inflation was seen averaging 7.26 percent this year, then slowing to an average 5.82 percent next year and 5.59 percent in 2011.
"The main reason we think inflation will be lower is because of weak local demand and huge extra capacity," said Salomi Odendaal, an economist at Citadel, adding that a sharp drop in inflation globally would spill over to local prices. - Reuters
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