SA economic confidence rises in September

South Africa’s economic confidence rose in September, largely due to expected easing in interest rates and inflation in 2009, a Reuters survey showed on Thursday.

The poll of 20 economists, conducted between September 29 and October 7, showed the Reuters Econometer, a confidence measure of six weighted indicators, climbed to a six-month high of 227,74 in September from 212,24 in August.

Economists said inflation would likely ease next year and interest rates could come down.

Interest rates have increased by 500 basis points since June 2006. Together with record-high inflation, they have eaten into disposable income and are helping to depress consumer and business confidence to multiyear lows.

The September poll saw the repo rate at 12% by the end of the year, from a mean expectation of 12,06% in August, while expectations for end 2009 eased to 10,43% from 10,53% a month ago.

The poll saw the CPIX inflation measure targeted by the central bank averaging 11,57% this year, slowing to 7,52% in 2009 and finally moving back into the 3% to 6% target band in 2010, at 5,86%, for the first time since it breached the range in April 2007.

Economists said CPIX inflation, at 13,6% year-on-year in August, was likely at a peak or close to it, and it would come down next year thanks to lower international oil and food prices and a re-weighting of the basket from January 2009.

”What we see is that inflation has peaked, and we expect it to come down significantly next year,” said Ronel Oberholzer, senior economist at Global Insight.

Rand a risk
But the weaker rand currency could eclipse the inflation outlook. The rand was seen weakening over the next three years, at 8,34 against the dollar by the end of 2008, falling to 8,61 and 8,87 to the United States unit by the end of 2009 and 2010.

The forecasts were done before the rand fell to its near seven-year low of 9,45 to the dollar on Wednesday, a 27% fall so far this year.

”If there is a complete collapse in the rand that would affect inflation negatively and rates could remain higher for longer,” said Salomi Odendaal, economist at Citadel.

Forecasts for local economic growth were largely steady. The September consensus for GDP was 3,51% average for 2008, from an August consensus of 3,50%, while it was at 3,03% for 2009 and seen rising to 4,38% in 2010.

Economists said growth would likely start to pick up in the second part of 2009 but could be guided by the global environment.

”We see the weaker growth trend continuing into next year, only to pick up from second part of 2009. But this could be delayed depending on the timing of [local] rate cuts and on the global scenario,” said Noelani King-Conradie, economist at NKC Consulting.

Economic growth has averaged 5,1 % in the last four years and the Treasury said it would slow to 4% in 2008.

A year of turmoil on global financial markets has raised the spectre of recession in some of the world’s biggest economies, which could spill over to countries such as South Africa. —

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