South Africa’s economic confidence rebounded in November on forecasts of a firmer rand currency and faster economic growth, but predictions for inflation and interest rate were higher.
A survey of 14 economists released on Thursday showed the Reuters econometer, a confidence measure of six weighted indicators, rose to 249,9 in November from 245,99 in October.
The rise was the first since February, and follows data last month that showed Africa’s biggest economy is growing faster than previously thought.
It also reinforces other surveys that show manufacturing confidence at an 11-year high, business confidence at an all-time high and consumer confidence in the fourth quarter ticking back up.
Statistics South Africa said gross domestic product expanded by 4,7% in the third quarter of 2006, slowing from the previous quarter but still robust despite higher interest rates.
It revised upwards rates for the previous three quarters and 2005 when it said growth was 5,1% — its fastest in more than two decades.
The data pointed to an economy that was taking interest rate hikes in its stride ahead of an expected boost from a massive government infrastructure spending drive.
”On the spending side I think it is likely to slow because of the higher interest rates … [but] the accelerated fixed investment will probably offset the slower growth in consumer spending,” Nedbank economist Magan Mistry said.
The central bank has already hiked its repo rate by 150 basis points since June to tame rising inflation and is widely expected to raise it again by half a percentage point later on Thursday to 9%.
Robust growth
Economists polled increased their forecasts for growth, with the consensus number rising to 4,78% in 2006, 4,3% in 2007 and 4,62% in 2008. This compared to 4,26%, 4,27% and 4,65% in last month’s poll.
”We continue to foresee robust growth,” Mistry said.
Data released on Wednesday showed retail sales jumped to 13,6% in the year to September, while manufacturing output rebounded to 7,5% year-on-year in October from 2,1% previously — more evidence of strong underlying growth.
Economists also expected a firmer rand currency at the end of 2006, compared to previous estimates.
The poll sees the rand at 7,27 versus the dollar this year, and 7,78 in 2007 compared to 7,58 and 7,87 respectively in the October survey.
The currency has rebounded from a three-and-quarter year low of 7,98 to the dollar hit in early October, but is still about 11% down versus the dollar this year and 20% weaker against the euro.
The weaker currency is a boon to manufacturers and should help to raise exports and ease a current account deficit of more than 6% of GDP, although so far the trade deficit continues to widen.
But predictions for inflation and interest rates deteriorated.
”I think the risks to inflation remain on the upside … but we expect it to move back below 6% in the second half of next year given the [central bank’s] commitment to inflation targeting,” Marisa Fassler of JP Morgan said.
Estimates for the targeted CPIX inflation measure edged up to an average increase of 4,68% for 2006, 5,54% in 2007 and 4,91% in 2008 from 4,67%, 5,43% and 4,78% respectively.
Factory gate prices were also seen growing faster than expected, hardening the case for more rate hikes.
CPIX inflation has remained within the central bank’s three to six percent range for more than three years but is seen testing the upper end of the band in 2007, partly fuelled by a spending boom financed largely through credit and debt. – Reuters