Sunnier outlook for SA economy

Johannesburg - The prospects for the South African economy are looking better every month.

The 30 economists taking part in the Sake/Absa Economist of the Year competition made upward adjustments to their predictions for the main variables in the South African economy for the third successive month in June.

Although the adjustments are small, the upward trend reflects a greater measure of confidence in the economy, which has recently also been apparent in business and consumer confidence surveys.

This is in sharp contrast to the first three months of the year, when the predictions were adjusted downward every month.

The economists taking part in the competition are asked to make predictions about a range of variables every month, after which the University of Stellenbosch Graduate Business School's Prof Eon Smith processes them into a consensus forecast.

The latest consensus forecast of the economic growth rate for this year is 2.29%, compared with 2.15% in March, when the economists were at their most negative.

For next year, a growth rate of 3.16% is expected, as against the most negative forecast of 3.03% in February.

It is also predicted that private consumer spending will increase by 2.26% this year, as against a predicted increase of 2.04% in February.

Absa chief economist Christo Luus says the increase in confidence is surprising, since there are still numerous problems that can trouble consumers and investors. Internationally, there are political uncertainties, share markets performing poorly in the midst of corporate scandals, slow economic growth in industrialised countries, a weaker dollar and great concern over developments in certain emerging economies.

In South Africa, there are higher inflation and interest rates, a fluctuating rand, market-unfriendly legislation, strikes and concern about the possible effect of El Nino on the agricultural sector.

"Nevertheless, it looks as if confidence in the South African economy is increasing. The real gross domestic expenditure in the first quarter increased by 3.9% (on an annualised basis), which is the biggest increase in two years. Consumers are apparently also in the process of strengthening their financial positions, as is shown by their average debt to disposable income ratios, which at 53.8% are at the lowest level since 1993," he said.

The only thing still worrying the economists is inflation, which could dampen economic prospects.

The economists are now predicting that the average inflation rate for this year will be 8.14%, as against an estimated 7.14% in February. For next year, an average rate of 6.31% is expected, as against 5.76% in February.

Since last month, the economists have also been asked to predict the CPIX, the inflation rate on which the Reserve Bank's inflation targets are based. The latest forecast is an average rate of 8.61% for the year, compared to forecasts 8.84% last month.

The consensus view is that interest rates will remain high in the short term, but the economists are more optimistic about rates in the long term. An average figure of 11.54% is now expected for negotiable certificates of deposit in the fourth quarter, compared with 10.96% in February.

The economists are more optimistic about the yield rate for the R150 government bond, which is regarded as an important barometer of future interest rate movements. The consensus forecast is that this rate will average 11.75% in the fourth quarter, as against a forecast of 12.19% in March.

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