S.Africa Feb economic confidence up on growth hopes
by Olivia Kumwenda

Reuters    Translate This Article
4 March 2010

JOHANNESBURG (Reuters) - South Africa's economic confidence rose in February on optimism that the economy will grow this year and next with interest rates remaining low for most of this year.

An economic recovery from the country's first recession in almost two decades gathered speed in the fourth quarter of 2009, led by a rebound in manufacturing output.

The Reuters Econometer—an index of six weighted indicators—on Thursday rose to 240.55 in February from 236.45 in January.

Economists in the poll were more optimistic about economic growth, with the median consensus showing GDP will rise 2.75 percent this year, 3.49 percent in 2011 and 3.96 percent by 2012, all expectations higher than those given last month.

Statistics South Africa has said the economy contracted by a provisional 1.8 percent in 2009.

'The economy is coming from a very low base and the build up of inventories has proven to be quite strong, particularly in manufacturing, construction and mining. That is going to be driving our economic growth,' Collen Garrow, an economist at Brait, said.

With the economy picking up speed, economists saw inflation rising next year on high electricity prices after being largely contained this year.

Headline CPI measured 6.2 percent year-on-year in January but is expected to ease back into the central bank's 3 to 6 percent target band this year, with power prices the main threat to inflation.

The energy regulator granted state-owned utility Eskom a nominal 24.8 percent tariff increase for the 2010/11 financial year, falling short of the power firm's request for a 35 percent hike.

'The secondary impact of the electricity prices will be quite severe. I believe it's going to increase the cost base of the economy more than what we now expect,' Elize Kruger, an economist at KADD Capital, said.

The poll saw CPI averaging 5.55 percent in 2010, rising to 6.01 percent next year and 6.03 in 2012.

With inflation expected to be well-contained this year, economist said interest rates are likely to stay flat for now, and start rising next year.

'In terms of our forecasts the recovery is under way but inflation will remain well-contained (and also) global policy remains accomodative ... this will prevent tightening this year,' said Carmen Nel, economist at Rand Merchant Bank.

The median consensus was for the repo rate of 7.17 percent by the end of 2010, rising to 8.37 and 8.68 in 2011 and 2012 respectively.

The central bank left the repo rate steady at 7.0 percent at its last four meetings, after reducing it by 500 basis points between December 2008 and August 2009.

On the currency front, the poll predicted the rand would weaken slightly to 7.98 against the dollar by the end of 2010 and 8.43 by the end of next year, both forecasts not far off those in the January's poll.

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