South Africa’s economy remains on track for a good year, but while rising incomes will continue to provide support for consumer spending, higher interest rates and growing structural imbalances will muzzle the country’s overall expansion, according to Moody’s Economy.com economist Dr Ruth Stroppiana.
She says that although consumer spending is likely to remain strong in the medium term, the reduced wealth effect of slower house price growth and still high petrol prices is eroding households’ purchasing power.
“Also, with household debt levels at a record high and consumer credit still in rapid expansion mode, we anticipate further monetary tightening action from the central bank this year,” she avers.
“Even though inflationary expectations are rising, we are not predicting an inflation outbreak in South Africa and our current forecast is for overall consumer price growth to come in around 3,8% in 2006 as rising interest rates and tighter lending standards diminish excess liquidity by slowing the demand for credit and taking some of the steam out of consumer spending in the closing months of the year,” she adds.
She believes South Africa’s export sector will remain a primary power behind the expansion of the economy, buoyed by continued strong global demand for the country’s minerals and metal resources.
“South Africa’s increasingly export oriented manufacturing sector is also growing at a robust pace and holds some upside potential for job creation, but the overall outlook for labour market remains rather bleak as economic growth is still not strong enough to significantly lower the elevated jobless rate.”
According to Stroppiana, ongoing emerging market jitters and the global commodity market roller coaster ride remain the major threats to the outlook for the country’s financial markets. – I-Net Bridge