South Africa’s growth recovery is expected to continue, the Bureau of Economic Research (BER) said on Monday.
It was releasing its economic prospects report for the first quarter of 2010.
Despite a weaker consumer spending and fixed investment forecast, the BER’s 2010 gross domestic product (GDP) growth projection — compared with October 2009 — remained unchanged at 2,7%.
“This is mainly the result of an improved view on net exports.
“Furthermore, we forecast a mild inventory rise for 2010,” BER economist Hugo Pienaar said.
He said this was important as it was the change for inventories that affected GDP — the sharp inventory decline in 2009 meant that even a small rise during 2010 made a big positive growth contribution.
Pienaar said the growth recovery was expected to continue in 2011. However ,at a projected 3,5%, growth was expected to remain significantly below the 5% mark reached between 2004 and 2007.
In Pienaar’s view, the key domestic growth risk was a scenario where the fourth-quarter job growth was not sustained and companies continued to downsize their workforce.
“This would have a negative impact on consumer demand — responsible for two-thirds of GDP — and could potentially also lead to increased social unrest.”
He said such a scenario would also put government finances under increased strain as it meant that tax revenue would remain under pressure.
“Another risk, although we attach a low probability to it, is a move to more populist economic policies that would dent foreign investor perceptions towards South Africa and cause a decline in the value of the rand.”
He said globally, the most important risk was a growth relapse once some of the massive policy support measures started to fade and the inventory restocking process had run its course.
Consumer price inflation
Meanwhile, South Africa’s consumer price inflation (CPI) is expected to fall below 6% from February 2010, the BER said.
“After showing some stickiness to ease meaningfully in the early part of 2009, South Africa consumer prices moderated to below the upper limit of the South African Reserve Bank’s (SARB) 3% to 6% target range in October and November 2009,” Pienaar said.
In December 2009, the low base established at the end of 2008 when the petrol price declined by R1,61 per litre, resulted in a move back above 6% to 6,4% year-on-year, he said.
“The reacceleration of price pressures is set to be temporary with a renewed — and importantly sustained — fall below 6% expected from February 2010.”
Pienaar said weak domestic consumer demand, the sustained rand strength, lower wage increases and subdued global inflation were some of the key factors that should keep South African inflation at bay.
“The uncertainty about the extent of Eskom’s electricity tariff hikes, due to be announced on February 24, provide the most important upside inflation risk,” he said.
The BER’s inflation model incorporated electricity price increases of 30% for 2010 and 2011.
“Taking all of the above into consideration, the BER’s updated inflation forecast sees CPI easing to an average of 5,3% in 2010 from 7,1% during 2009, before accelerating to 5,9% in 2011.”