South Africa’s economy is expected to grow by 4,2% this year amid a domestic spending boom buoyed by low interest and inflation rates, a local think tank said on Thursday.
“Bar unforeseen shocks, the South African economy is expected to perform well. We forecast a real gross domestic product growth of 4,2% this year and 3,9% in 2006,” said a report by the Stellenbosch-based Bureau for Economic Research (BER).
“It is clear that a consumer spending boom is far from over. Real fixed investment spending is at a 10% rate during the first quarter of 2005,” the report said.
South Africa has experienced its lowest interest rate in years at about 11,5%, while inflation is hovering between a 3% and 6% target set by the South African Reserve Bank.
The report said retail sales volumes have grown by 9% and car sales are up by 30% to new record levels.
“Consumers are confident and increasingly accessing credit to finance purchases,” it said.
But the BER warned that “downside risks” could place a damper on growth next year.
“The international market recovered swiftly from the impact of the London bombings, but the post-9/11 world is an uncertain one.
“Furthermore, oil price volatility and United States dollar uncertainty cloud the outlook,” it said, adding that a sharper-than-expected increase in domestic interest rates and weaker global economic growth could produce a more pronounced domestic economic slowdown in 2006. — AFP