South African economic confidence has edged up to a 20-month high, suggesting improved conditions towards the end of 2009 as inflation eases and interest rates fall.
But the December Reuters Econometer released on Thursday showed economic growth will slow sharply this year, stung by constrained household spending and weak international activity, before recovering somewhat in 2010.
The Econometer survey of 18 economists, a confidence measure of six-weighted indicators that looks at conditions a year ahead, stood at 260,86 in December — its highest level since April 2007 — compared to 260,65 in November.
The gauge has risen for seven consecutive months since hitting a five-and-a-half year low in May 2008.
Interest rates in Africa’s biggest economy are seen falling sharply this year as inflation eases back into the central bank’s 3% to 6% target range, and economic growth slows.
Consumers are battling to cope with the five percentage point total rate hikes made during the two years to June 2008 and the economy is being more affected by a global slowdown than had been expected.
The Reserve Bank began unwinding the rate increases in December, with a 50 basis point cut in the repo rate to 11,5%. Markets expect another, possibly more aggressive, move in February.
Economists polled forecast the repo rate will end the year at a mean 8,65%, suggesting about three percentage points in relief in 2009. This was down on the 9,21% average in the November survey.
”I think, first of all, we are running behind the global curve … I am hoping that the revised, re-weighted and re-based inflation will be the catalyst to trim rates by one percentage point next month,” Brait economist Colen Garrow said.
”The big impact is not so much inflation, which will take care of itself, but economic growth.”
Slowing growth
Consumer inflation was seen averaging 5,98% this year — down from November’s 6,23% forecast — and 5,44% in 2010.
The current targeted inflation gauge CPIX, which stood at 12,1% year-on-year in November, will fall away from January, to be replaced by a new, re-weighted CPI.
Less emphasis on food prices will likely result in a big drop in the headline number.
Producer inflation was also seen slowing this year, with economists predicting a 6,24% average for 2009, down from the 7,31% predicted in the November survey.
The outlook for economic growth, though, is gloomy.
The latest poll showed growth could slow to an average of 1,49% this year, which would be the lowest expansion since 1998, before bouncing back to 3,63% next year.
In the November poll, growth was seen at 1,7% for 2009.
South Africa’s manufacturing sector contracted for a second straight month in November, while retail sales and vehicle sales, as well as mining production, have long been in decline.
”We think that economic activity is going to slow down even further in 2009,” Citadel economist Salomi Odendaal said. ”Consumers will remain under pressure and South Africa will not escape the slowdown in international demand.”
The economy grew just 0,2% quarter-on-year in the third quarter of 2008, a decade low. Some analysts are predicting the economy will dip into negative growth, and possibly a technical recession early this year. – Reuters