South African economic confidence surged to a 19-month high in November, a survey showed, although overall output growth should remain sluggish.
A survey of 13 economists released on Thursday, showed the Reuters Econometer, a confidence measure of six weighted indicators, jumped to 260,65 in November from 243,62 the previous month, its highest showing since April 2007.
The econometer, which points to conditions a year ahead, was published a few hours before South African Reserve Bank Governor Tito Mboweni announces the next move on interest rates.
The Reserve Bank lifted the repo rate, at which it lends to commercial banks — by a total of 500 basis points between June 2006 and June 2008 in a bid to tame inflation, hitting key sectors like manufacturing as consumer demand cools.
But the majority of economists polled by Reuters last week expected the central bank’s policy committee, which Mboweni chairs, to cut the repo rate by 50 basis points to 11,5%, partly due to an improved inflation outlook.
”I think people are hopeful that they are going to get cuts … and I think generally inflation is expected to fall,” said Brait economist Colen Garrow, explaining the rise in the Reuters confidence index.
”Growth obviously will be very subdued, but I think the motivating force for the economy will probably be the interest rate movement, so if we can take it down and we can take it down significantly in the new year, consumers will feel better.”
The econometer showed the repo rate is seen at a mean 11,67% at the end of this year, pointing to expectations of a possible December cut after leaving it unchanged at 12% in August and October.
The repo rate should decline further to a mean 9,21% at the end of next year and to 8,68% the year after.
Concerns stemming from global slowdown
While the Reserve Bank remains worried that inflation is still way above a 3% to 6% target range at 12,4%, concerns about the waning economy, due to a global slowdown and higher domestic rates, could hold sway in Thursday’s decision.
The econometer found that gross domestic product expansion was seen falling sharply to an average 1,7% in 2009 from 3,21% this year, before recovering to 3,68% in 2010.
In its own forecast, the National Treasury sees slower growth of 3% for 2009 from 3,7% this year, but has ruled out South Africa following major world economies like the US into recession.
Inflationary pressures are likely to ease, with the consumer inflation less mortgage costs (CPIX) gauge currently targeted for monetary policy expected to brake sharply to an average 6,46% in 2009 from 11,29% this year, the econometer found.
CPIX is already trending lower, coming down to 12,4% year-on-year in October from a peak of 13,6% reached in August.
Inflation should slow further next year, when a re-weighted headline CPI number replaces CPIX as the targeted measure.
In the econometer, CPI was seen averaging 6,23% next year, close to the 3% to 6% target band, from 11,52% in 2008.
Interest rate cut could be postponed
Economists put the rand at R9,88 against the dollar at the end of 2008, firming slightly to R9,52 next year and R9,41 in 2010.
The rand has fallen over 30% against the dollar to date this year, as investors gravitate away from risky assets in the wake of a global financial crisis that started late 2007.
Some economists believe the weaker currency, a wide current account deficit of 7,9% of GDP, and present double-digit inflation could convince South African policy makers to hold off on a cut until next February.
”The Monetary Policy Committee may tend to be conservative, and wait over December so as not to provoke any sharp movements in the rand, said Nedbank in a note.
”If the committee decides to adopt this course of action, a cut early in the new year is inevitable.” — Reuters