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SA`s economy shows 'Signs of recovery' 2019;

By unknown | Oct 21, 2009 | COMMENTS [ 0 ]

SOUTH Africa may have come out of recession during the third quarter this year, Old Mutual Investment Group SA said yesterday.

SOUTH Africa may have come out of recession during the third quarter this year, Old Mutual Investment Group SA said yesterday.

Senior economist Johann Els said third quarter gross domestic product data was likely to show economic growth of around 2percent.

Following contractions of minus 6,4percent quarter-on-quarter in the first quarter and minus 3,0percent quarter-on-quarter in the second quarter of this year, the local economy was starting to show "solid signs of recovery" following the consolidation of economic growth in the rest of the world, Els said.

"Though consumer demand remains weak, the strong government demand, improved exports and the inventory cycle are all supportive of growth," Els said.

He said indicators such as manufacturing output and new orders were rising, while electricity production and cement sales were higher, as were commercial vehicle sales.

But the South African consumer had yet to experience the recovery, as shown by the minus 7percent year-on-year fall in retail sales in August, the minus 8,8percent drop in car sales in September and the contraction of 0,9percent in consumer credit over the third quarter of the year, Els pointed out.

He said other factors supporting recovery included the improving current account, which had moved from a deficit of more than 8percent of GDP in 2008 to around 3percent of GDP currently, and the stronger rand, which had helped keep inflation in check.

Looking beyond the third quarter, Els forecast a relatively slow recovery, with average GDP growth of about 2,5percent year-on-year for 2010, accelerating to around 4percent year-on-year growth in the following two years.

Els said that relative to other economies emerging from the recession, South Africa's forecast 2,5percent growth rate lagged those of most of south-east Asia (at between 4percent and 6percent), as well as China (9percent) and India (6,5percent).

But South Africa compared poorly in terms of its expected 2010 government budget deficit of about minus 6percent of GDP, which was higher than most countries apart from Malaysia, the US, Spain and Iceland (the latter two at more than minus 10percent of GDP).

"South Africa's inflation rate is also seen to be stubbornly higher than most," he said, projecting average consumer price inflation at 5,5percent year-on-year for next year.

Els said the Reserve Bank was likely to cut rates only if inflation drivers (such as food and oil prices) improved substantially and the real economy did not improve substantially.

Apart from the risk of a too-strong rand, the other key downside risk going forward, Els cautioned, was the failure of consumer demand to recover. - Sapa


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