South Africa’s economic confidence soared in December on forecasts of a firmer rand currency, tamer inflation and continuing solid expansion.
A survey of 15 economists released on Thursday showed the Reuters econometer, a confidence measure of six weighted indicators, rose to 263,74 in December — its highest level since May last year — from 249,9 in November.
The December rise entrenches a turnaround in November that ended eight consecutive monthly declines, and comes in spite of interest-rate hikes in Africa’s biggest economy.
South Africa’s central bank has raised its key repo rate by 200 basis points to 9% in four stages from June 2006. Economists are divided on whether rates will rise again in February.
Lower-than-expected inflation data and signs consumers may be heeding warnings to curb spending have raised hopes rates may not have to rise again, although record credit growth remains a serious concern.
Official data put CPIX inflation, targeted by the central bank, unchanged at 5% year-on-year in November, below forecasts of a 5,2% rise. Factory gate inflation was also below predictions, unchanged at 10%.
Economists cut the consensus forecast for average CPIX inflation to 5,26% in 2007 and 4,81% in 2008 — down from 5,54% and 4,91% in the previous survey — partly due to lower oil prices.
”The assumption on oil was generally speaking a bit high and with oil prices coming down substantially, economists will be cutting their forecasts,” Vunani economist Johan Rossouw said.
Lower international crude prices, which have dropped by almost 30% since peaking in July last year, could ease pressure on domestic inflation, which the central bank sees briefly breaching the 3% to 6% target range in the first half of this year.
Firmer rand
High consumer spending remains a risk, with private sector credit growing 26,77% in November, near October’s all-time high, although new vehicle and retail sales have tapered off.
Economists are also more bullish on the rand, forecasting the currency at 7,53 per dollar for 2007 and 7,83 in 2008, firmer than the 7,78 and 8,02 respectively in the November poll.
The rand clawed back some of its losses against the dollar in 2006, ending the year about 9% weaker at 6,97/dlr, after tumbling to a three-and-a-quarter year low of 7,98 in October.
But it has lost ground in 2007, trading about 5% softer so far this year.
A weaker currency is a boon for exporters and should help to cut a current-account deficit estimated at 5,2% of gross domestic product (GDP) in the third quarter of 2006, while a stronger rand will aid the fight against rising inflation.
Predictions for economic growth were stable, after data for the third quarter of last year showed the economy growing at just less than 5% quarter-on-quarter, shrugging off higher rates.
Economists forecast growth of 4,33% for 2007 and 4,62% in 2008, little changed from the previous survey.
A planned government infrastructure drive over the next few years and ahead of South Africa’s hosting of the 2010 Soccer World Cup should continue to drive growth.
”What is going to make a significant impact in this cycle is the R410-billion in capital expenditure. It is going to prop up the cycle quite nicely,” Rossouw said.
Predictions for the repo rate were also steady at about 9% at the end of 2007, and 8% at the end of 2008. — Reuters