South Africa's economic confidence improved in January, bolstered by growing optimism the economy will rebound this year.
South Africa’s economic confidence improved in January, bolstered by growing optimism the economy will rebound this year after emerging from recession in the third quarter of 2009.
Africa’s biggest economy is expected to have contracted by about 1,8% last year but signs of recovery in manufacturing output and higher vehicle sales, as well as an injection of foreign money during the Soccer World Cup, point to a better performance in 2010.
Factory activity is on the rise, tracking conditions in other countries, which have also returned to economic growth, although concerns remain around soft local consumption demand.
The Reuters Econometer—an index of six weighted indicators—released on Thursday, rose to 236,45 in January from 231,91 in December.
The poll showed analysts were more optimistic about growth this year, predicting an average of 2,63% expansion, up on the 2,38% forecast in the previous month’s survey.
The consensus was also sharply higher than the Treasury’s 1,5% growth forecast.
“Government spending should continue to support growth and we expect a gradual and modest recovery in domestic private demand,” said Elna Moolman, economist at Barnard Jacob Mellet.
Economists saw growth rising to 3,48% next year, slightly up on the previous month’s poll.
Inflation was seen averaging close to the top end of the central bank’s current 3% to 6% target range, with expected big price increases by power utility Eskom the main threat to the outlook over the next two years.
The South African Reserve Bank has forecast CPI to ease back into the band early this year, but warned the 35% a year three-year tariff increase request from Eskom could lead to wider price increases.
Headline consumer inflation pushed back outside the top end of the range to 6,3% year-on-year in December, although analysts and the central bank say this is largely on base effects and should be temporary.
The poll saw CPI averaging 5,79% in 2010, and 5,93% next year, slightly up on the forecasts made in the previous survey.
“We do expect inflation to come back to below 6% within the next month or two, but we are not convinced it will remain within the target range throughout this year,” Johan Rossouw, strategist at Vunani Securities, said.
Interest rates should stay relatively steady this year but slightly fewer analysts predicted an increase in the central bank rate by end-2010 than previously.
Dovish comments from Reserve Bank Governor Gill Marcus at the January policy meeting raised speculation that the repo could fall from the current 7% in March, particularly given continued weak consumer demand, the main driver of faster growth in the five years until 2007.—Reuters. .