Business Unity South Africa (Busa) has cut its economic growth forecast for this year from 3.4% to 3.1%, saying a further cut in the repo rate could soon be necessary.
“[This] is broadly in line with what many business economists are now indicating in the light of new realities,” the business lobby group said in a statement, after a meeting of its economic policy committee on Friday.
The decision to lower the 2011 forecast was taken in light of various global and domestic economic trends, including the expected slowdown in the global economy to about four percent growth.
Advanced economies were now expected to grow at a rate of around 1.7% and developing economies at 6.3%.
The risk of a double dip recession in some countries and the economic problems in the Eurozone were risks to growth.
Africa-wide reassessment
The African Development Bank had reduced its forecast for African economic growth in 2011 from 3.7% to 3.2%.
Busa also considered the less-than-robust growth and business conditions in South Africa in the second and third quarters of 2011, including the sharp 6% drop in manufacturing output in July.
“Over the month, output in most manufacturing industries dropped sharply.
“Protracted strike action disrupted production in the fuel, chemicals, and metals industries, while ongoing outages at key iron and steel plants added further pressure,” Busa said.
Higher electricity and transport costs, and rising labour costs were constraining competitiveness and profitability.
‘Less than optimal
“Overall growth — with some sectoral exceptions, such as retail — is likely to remain less than optimal in coming months, and unable to support widespread job creation.”
Busa said the conditions suggested that interest rates would need to stay low for longer, possibly well into 2012.
A further cut in the repo rate could soon be necessary.
“Turkey and Brazil have already cut interest rates recently, and Chile, Israel, Mexico, and South Africa are seen as possibly doing so in coming months,” Busa said.
The South African Reserve Bank’s Monetary Policy Committee announces its next policy decision on the repo rate on September 22. — Sapa