The South African economy has reached its bottom turning point and is now once again on a path towards higher growth, according to Absa senior economist John Loos.
Rather than relying on the international economy during the remainder of 2003, Loos maintains, improving domestic growth is expected to come on the back of
a steady decline in interest rates, accompanied by the end of the rand’s strengthening trend that has been experienced since 2002.
Strengthening consumer demand on the back of declining interest rates, he says, can already be witnessed in statistics relating to new vehicle sales, which have
showed impressive growth since the June interest rate cut.
Consumer demand, Loos adds, is expected to receive a further boost from an expected three 100 basis-point interest-rate cuts, one at each of the remaining
Monetary Policy Committee meetings this year. This would bring prime overdraft rates down to 12,5% by year-end, with CPIC inflation expected to bottom out at
about 3,8% during the first quarter of 2004.
“While the inflation target is expected to be reached during 2004, structural constraints in the domestic economy will persist, making it tough to consistently
achieve the target in subsequent years after the high base effects emanating from the inflation shock of last year have worked their way out of the year-on-year CPIX figures.
“It is therefore believed that the bank will have to maintain relatively high real interest rates in order to manage down average inflation rates over the long term, and as a result it is believed that a 12,5% prime overdraft rate will represent the bottom of the interest rate cycle.”
Loos adds that while lower interest rates are not expected to come in time to save the day for overall 2002 real economic growth, which is forecast at 2,2% for the
year, rising quarterly growth as from the current quarter is expected to result in
average growth returning to levels of around the 3% mark in 2004 and 2005. — I-Net Bridge