We’re in for a slog

Economic growth figures released this week paint a mutedly optimistic picture, but are unlikely to dissuade Reserve Bank Governor Tito Mboweni from pushing for an interest rate hike in two weeks’ time.

According to Statistics South Africa, gross domestic product grew by 2,2% for the first quarter of this year, down from 2,5% for the last three months of last year. The influential manufacturing sector weighed in with a 2,8% increase, down sharply from growth in the last quarter of 5,6%.

“We do not have particularly robust growth, but the figures show there’s life in the economy,” says Arthur Kamp, an economist at HSBC Securities.

Kamp expects the central bank’s monetary policy committee to hike rates when it sits later this month. The aim, he says, will be to dampen inflationary expectations and counter accelerated growth in money supply.

Estimates currently show that inflation for this year may range between 7% and 8% — above the Reserve Bank’s target of between 3% and 6%.

Some analysts voiced concern about raising interest rates. Jes Garson of Merril Lynch has been reported as saying: “The very factors that sparked a rate hike earlier in the year are abating” — a reference to the strengthening of the rand in recent weeks.

The surplus on the current account was steadily mounting, and inflation, though out of target range, had probably peaked on a quarterly basis.

Tony Twine of Econometrix confirms the tough times ahead. “Price rises are likely to create a neutral to negative environment for consumer spending,” he says. The two areas where he expects meaningful growth are fixed investments — although these will also be slightly constrained by a rate hike — and exports, the most consistent performer.

Another potential source of growth could be the government’s fixed investment spending, which at this year’s budget was expected to increase by 31% for this financial year. Twine believes that, if realised, this could lead to 15% to 20% real growth in government’s fixed investment spending.

Many economic commentators agreed this week that economic growth for the year would hover at around 2%, reaching 3% next year. This was due to the expected recovery of the global economy later in the year.


Dawie Roodt of PLJ Financial Services said he expected growth to pick up. His firm has adjusted its forecasts for 2002 to 2,2%, set to rise to 3,3 % next year.

Luke Doig, an economist at Credit Guarantee, said he had not changed his expectations of 1,75% this year, touching 2,75% next year. “I think we will struggle to reach 3%.”

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