Upbeat forecast for SA economy
15 August 2007
Despite the recent spate of industrial action, worse than expected inflation figures and higher interest rates, the Stellenbosch-based Bureau for Economic Research (BER) came out with an upbeat economic forecast for the third quarter on Tuesday.
Upgrading its forecast for South Africa's real gross domestic product (GDP) growth over the short term, the BER projected strong fixed investment growth, robust exports and continued employment growth in the third quarter.
The BER's Hugo Pienaar said in a statement that the bureau's optimism was based to a large extent on "the relative ease with which the consumer has so far been able to cope with a more challenging macroeconomic environment."
Expectations that South Africa's employment growth would remain robust "should help to shield the disposable income of households against the negative impact of higher food costs and interest rates," Pienaar added.
The outlook for fixed investment was also favourable, the BER said, thanks to increased capital expenditure plans announced by state companies such as Eskom and Transnet, as well as better than expected private residential investment in the first quarter.
The BER forecast that South Africa's GDP growth would remain at 5% in 2007 - unchanged from 2006 - an upward revision of its January (4.5%) and April (4.8%) forecasts.
"With the consumer likely to feel a bigger pinch from higher interest rates next year, GDP growth is forecast to slow marginally to 4.8% in 2008."
On the downside, with inflation likely to remain above the Reserve Bank's six percent upper target band until the end of the first quarter of 2008, the BER predicted that interest rates would rise by 50 basis points this week, with the possibility of another hike in October, "especially if oil prices remain at current highs and real signs of slower consumer spending are not forthcoming."
The BER also expects the rand to weaken to around 7.40 to the US dollar and 10.14 to the euro in the final quarter of 2007. "Lower commodity prices in 2008 could cause the currency to weaken to above eight rand to the dollar in the fourth quarter of next year."
The BER said its updated inflation forecast reflected the recent worse-than-expected price data as well as high international oil and food prices, sustained robust domestic demand, above inflation wage demands/settlements and higher electricity costs.
SouthAfrica.info reporter
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