The larger-than-expected 150 basis points cut in the repo rate announced on October 16 is likely to spur South Africa’s consumer into buying more interest-rate sensitive durable goods.
This is already reflected in the October new car sales, which rose by 20,2% y/y after a 0,5% y/y decline in the first half.
The volume of consumer electronics such as TVs are already up 9,0% y/y in the first eight months of the year and are likely to show double digit growth in the remainder of the year.
At the beginning of the year, the median forecast of economists had been that there would only be a 300 basis point cut in interest rates this year, after a 400 basis point increase last year.
This in turn meant that they expected GDP growth this year to be near 2% from last year’s 3%.
After making the first cut in June this year for the first time since September 2001, the South African Reserve Bank (SARB) has now cut by 500 basis points and the nominal prime rate of 12% is at its lowest level since January 1987. The last time it was in single digits was in January 1981.
The easing in interest rates is the logical counterpoint to the tightening of monetary policy caused by the strengthening rand. In Canada the so-called Monetary Policy Indicator sees an opposite one percentage point in interest rates offsetting a three percent change in the exchange rate. In South Africa the ratio is probably closer to one-to-ten.
Surging global growth, led by the US, which had the highest quarterly growth rate since the first quarter 1984, has also spurred exports despite the stronger rand. In September, exports grew by 44,7% y/y to $3,171-billion.
South African exports topped $3-billion in May, June, July, August and September this year — the first time ever that they have been above this level for five consecutive months.
Monthly exports have only exceeded $3-billion 12 times so far, but in previous episodes, the move above $3-billion was followed by a decline to below this level. Monthly imports topped $3-billion for the first time in September after they rose by 40,2% y/y to $3,087-billion after a 29,5% y/y increase to $2,824 billion in August.
In the first half 2003 exports increased by 16,1% y/y in US dollar terms to $17,446-billion, while last year exports rose by only 1,5% to $29,9-billion.
The annual benchmark revisions to the GDP data will be released on November 25. There is a strong likelihood that the initial estimate of 1,9% y/y GDP growth in the first half of the year will be revised substantially higher.
Finance Minister Trevor Manuel will, however, not have the revisions available to him when he presents the Medium Term Budget Policy Statement on November 12.
Any economic forecasts that are therefore presented in the MTBPS must be taken with a large pinch of salt. – I-Net Bridge