Confidence in South Africa’s economy dipped in December, with expected rand strength throughout the year weighing on the recovery from a 2009 recession, a Reuters poll showed on Thursday.
The Reuters Econometer, an index of six weighted indicators that looks two years ahead, fell to 265,42 in December compared to 270,21 in November. GDP and currency forecasts contribute 50% to the index.
The rand is expected to end 2011 at 7,21 versus the dollar, according to the consensus of 21 economists polled.
That is weaker than the unit’s current level of 6,84, but the 2011 year-end estimate is 3,46% firmer than a forecast of 7,47 in the November Econometer survey.
“Basically we think foreign appetite for South African investment vehicles will remain strong,” said Gina Schoeman, senior economist at Absa Capital. “Because of that we think the rand is going to remain strong.”
The rand gained over 10% against the dollar last year — translating to a rise of over 30% since the beginning of 2009 — due in part to foreign capital inflows as investors sought higher yields in emerging markets.
Sluggish growth
Africa’s biggest economy was expected to grow at an average of 3,51% this year, slightly higher than last month’s forecast of 3,40.
“I think the rand is too strong. It is probably going to weigh on the manufacturing and the mining sectors in particular,” Brait economist Colen Garrow said.
Mining and manufacturing are two of the economy’s biggest sectors, but are struggling to maintain export levels because of the rand’s strength.
The economy grew by a lower-than-expected 2,6% in the third quarter of 2010, compared to a downwardly revised 2,8% expansion in the second quarter. – Reuters