MICHAEL METELITS, Johannesburg | Friday 12.15pm.
ECONOMIC conditions are likely to improve in 1999/2000 as declines in retailing and manufacturing appear to have hit bottom, according to a report issued by Stellenbosch University’s Bureau for Economic Research on Friday.
The only worry on the horizon is that sustained job losses or a failure of job growth could seriously undermine the forecast recovery.
In its macro-economic forecast for 1999/2000 the bureau said changing movements in business confidence, more optimistic expectations, the more supportive financial political climate, and an improving world economy are all indications of improved business conditions during the second half of the year.
The economy is also set to enjoy the bnefeits of windfall gains from Old Mutual’s listing. “These developments are in line with our previous expectations and we have not adjusted our economic forecast for 1999 and 2000 substantially,” the bureau said.
The bureau said that more consolidation is due for the rest of 1999, however. Real Gross Domestic Product is expected to grow by 0,7% in 1999, but 3,3% in 2000, as this year provides a base for expansion next year.
Key points in the recovery will be in the areas of monetary policy, rand exchange, and balance of payments.
Monetary policy is likely to ease for some time to come. With the prime overdraft interest rate nearly two percentag points below pre-crisis levels and domestic demand conditions in the doldrums, the bureau is convinced that interest rates will continue declining well into next year for final demand in the economy to grow meaningfully.
A more stable rand exchange rate and the rapidly unwinding underlying domestic monetary conditions should be supportive of more relaxed monetary policy.
The current account of the balance of payments could remain in a surplus during the second quarter, despite the adverse terms of trade impact from the slump in the gold price concomitant with the sharp increase in the crude oil price.
“Even our conservative forecast, of a slight recovery in formal sector employment next year could be too optimistic. Sustained net job losses during 2000 could have grave consequences for the expected economic recovery, which will this time around be more dependent on higher household income growth as the credit boom of 1994/96 is unlikely to repeat itself,” the bureau said.