SA 2007 growth outlook positive

JOHANNESBURG – South Africa’s economic outlook has improved despite rising inflation and a spate of strikes, the Bureau for Economic Research said yesterday, and raised its growth forecasts for 2007.

Africa’s economic powerhouse has seen a series of strikes for higher pay in recent months and inflation beating settlements could add to price pressures. The CPIX inflation measure – consumer prices minus mortgage costs – has been above the central bank’s three to six per cent target band for the past three months.”Despite these negative developments the BER is – compared to our previous forecast run in April – more optimistic about the country’s growth outlook,” the Bureau said in a statement.The BER is an independent research group which regularly puts out economic surveys read by fiscal and monetary policy makers in South Africa.”To a large degree the optimism is based on the relative ease with which the consumer has so far been able to cope with a more challenging macroeconomic environment”, said BER economist Hugo Pienaar.Growth is now seen at 5,0 per cent in 2007, unchanged from last year and above the 4,5 and 4,8 per cent predicted in January and April respectively.Pienaar said expectations that 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.South African growth has been mainly propelled by high consumer demand, but this has strained domestic supply, boosting imports.A resultant widening of the deficit on the current account has put pressure on the rand, which shed 10 per cent against the dollar last year and has lost another 3,5 per cent to date in 2007.The central bank is also concerned that consumer demand has been largely credit-driven, with household debt shooting up to 76 per cent of disposable income, despite 250 basis points worth of interest rate increases during the 12 months to June.The bank’s monetary policy committee meets today and tomorrow and most economists expect another 50 basis point increase to 10 per cent.The BER said growth should slow to 4,8 per cent in 2008 as consumers start to feel the pinch from higher interest rates.CPIX inflation was expected to stay above six per cent year-on-year until the first quarter of 2008.The 2007 average was projected at 6,2 per cent, compared to previous forecasts of 5,6 per cent.”In light of the higher inflation forecast the BER expects another 50bps interest rate hike at the conclusion of this week’s MPC meeting,” it said.Beyond the first half of 2008 the inflation outlook looked more promising, which may result in a moderate interest rate decline during the latter stages of next year.The BER said it expected only a gradual depreciation of the rand currency, which should be positive from an inflation point of view.Nampa-ReutersThe CPIX inflation measure – consumer prices minus mortgage costs – has been above the central bank’s three to six per cent target band for the past three months.”Despite these negative developments the BER is – compared to our previous forecast run in April – more optimistic about the country’s growth outlook,” the Bureau said in a statement.The BER is an independent research group which regularly puts out economic surveys read by fiscal and monetary policy makers in South Africa.”To a large degree the optimism is based on the relative ease with which the consumer has so far been able to cope with a more challenging macroeconomic environment”, said BER economist Hugo Pienaar.Growth is now seen at 5,0 per cent in 2007, unchanged from last year and above the 4,5 and 4,8 per cent predicted in January and April respectively.Pienaar said expectations that 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.South African growth has been mainly propelled by high consumer demand, but this has strained domestic supply, boosting imports.A resultant widening of the deficit on the current account has put pressure on the rand, which shed 10 per cent against the dollar last year and has lost another 3,5 per cent to date in 2007.The central bank is also concerned that consumer demand has been largely credit-driven, with household debt shooting up to 76 per cent of disposable income, despite 250 basis points worth of interest rate increases during the 12 months to June.The bank’s monetary policy committee meets today and tomorrow and most economists expect another 50 basis point increase to 10 per cent.The BER said growth should slow to 4,8 per cent in 2008 as consumers start to feel the pinch from higher interest rates.CPIX inflation was expected to stay above six per cent year-on-year until the first quarter of 2008.The 2007 average was projected at 6,2 per cent, compared to previous forecasts of 5,6 per cent.”In light of the higher inflation forecast the BER expects another 50bps interest rate hike at the conclusion of this week’s MPC meeting,” it said.Beyond the first half of 2008 the inflation outlook looked more promising, which may result in a moderate interest rate decline during the latter stages of next year.The BER said it expected only a gradual depreciation of the rand currency, which should be positive from an inflation point of view.Nampa-Reuters