January economic confidence hits three-month low
South Africa’s economic confidence fell to a three-month low in January on a poor economic growth outlook and a weaker rand, a poll showed on Thursday.
The Reuters Econometer—a confidence measure of six weighted indicators—fell to 255,40 in January, its weakest since October, from 260,86 in December.
Most of the 19 economists surveyed downgraded their growth forecasts from December. The 2009 GDP consensus for January was at 1,18%t from December’s 1,49%. GDP expectation for 2010 was at 3,56% from last month’s 3,63%.
“The economy is undoubtedly slowing down at an alarming pace while downside risks are escalating rapidly,” said Elna Moolman, an economist at Barnard Jacobs Mellet.
National Treasury said in the budget speech the economy would likely slow to a decade low of 1,2% in 2009. Stastics South Africa has not released growth figures for 2008, but Treasury saw GDP growth at 3,1% last year.
Analysts have said South Africa would likely experience a technical recession on the back of falling output and depressed consumer spending.
“We expect to see material monetary policy easing in the coming months to stimulate the economy,” Moolman said.
The central bank started cutting interest rates in December and has reduced the repo rate by 150 basis points to 10,5%—the latest cut of 100 basis points announced last week—after 500 basis points worth of rises between June 2006 and June 2008.
Expectations in the Econometer were that the repo rate would end the year at a mean of 8,22%, suggesting about 2 percentage points more relief in 2009. December’s forecast was at 8,65%.
Consumer price index inflation was seen averaging 5,84% this year, and 5,64% in 2010 from December’s expectations of 5,98% and 5,44% respectively.
The Treasury said on Wednesday inflation was expected to come back within the target range of between 3% and 6% in the first half of this year.
The Reserve Bank has identified a weaker rand as the biggest threat to the inflation outlook. The rand plunged to a near seven-year low of R11,88 against the dollar in October, but has since rebounded.
Economists put the currency at R9,70 to the dollar by the end of this year, bearish than December’s forecast of R9,44. The currency was seen ending 2010 at R9,41 to the dollar.
Analysts have said failure to restore confidence in global markets will likely keep the rand under pressure.—Reuters