Downshift in economic growth for 2006: ABSA
Johannesburg, South Africa
Short-term macroeconomic indicators thus far as the first quarter of 2006 draws to an end suggest that economic expansion is clearly moderating, according to Absa senior economist Ridle Markus.
He says Absa’s expectation that overall economic growth could come in just above 4% year-on-year in 2006 is still intact, with no evidence as yet suggesting substantially higher growth for the year.
Markus adds that growth in 2006 is expected to trend lower as a result of a slowdown in household consumption expenditure.
“Despite optimism that consumer spending will remain firm in 2006, we anticipate a slowdown in household consumption expenditure to around 5,2% in 2006 from levels well above 6% in 2005. On balance, our view is that with demand expected to moderate in the period ahead and no or little further monetary policy easing, overall economic growth over the next two years is likely to be around 4% to 4.5%.”
But he expects inflation to remain within the South African Reserve Bank’s (SARB) target range.
“We project an increase in CPIX inflation [consumer inflation less mortgage costs] to just above 5% year-on-year by year-end. These projections are based on steady price increases in food products, stable oil prices, a levelling off in consumer demand over the year and a fairly stable rand exchange rate.”
He expects the current account balance to weaken slightly in 2006, widening from a projected deficit of 4,5% as a percentage of GDP to 4,7%.
“A further run-up in oil prices and food prices would impact negatively on the inflation outlook. While we do not expect wage increases, consumer demand and a lack of spare production capacity to be a major threats to the inflation outlook and therefore interest rates at the moment, the combined effect of rising fuel prices, food prices and a further increase in money supply and credit extension could well tilt the scale in favour of a rate hike.
“Nonetheless, we do not expect any rate adjustment in 2006, with the SARB probably happy to hold out until these risks have dissipated,” Markus adds. — I-Net Bridge