Growth of the South African economy is forecast to reach 3.8 percent in 2011, the Bureau for Economic Research (BER) said on Thursday.
“For 2011, the BER has made an upward revision to the SA GDP growth forecast of 0.4 percent points to 3.8 percent,” the BER said in its first quarter prospects for the South African economy.
The improved outlook stems from a more optimistic projection of household consumption expenditure.
“The result is that gross domestic expenditure (GDE), the broadest measure of domestic spending that includes fixed investment, government expenditure and inventory investment, accelerates to growth of 4.8 percent during 2011 from a projected 4.3 percent in 2010,” said the bureau.
Recent economic data strongly suggests that GDP growth accelerated towards 4 percent quarter-on- quarter in the fourth quarter of 2010, with the more upbeat data following a loss of growth momentum in mid 2010. This was when the economy expanded only by 2.6 percent quarter-on-quarter in the third quarter of 2010.
“Growth of 4 percent in quarter four would result in the economy expanding by 2.7 percent for 2010 as a whole, following the contraction of 1.7 percent recorded in 2009. Importantly, the growth recovery to date has not been broad-based, with robust consumer spending providing most of the impetus, while fixed investment remains poor, albeit slowly gaining traction,” said the BER.
Global economic prospects have also improved despite sovereign, especially European, debt concerns and rising fears about a build-up of especially emerging market inflationary pressures.
In its January 2011 World Economic Outlook update, the IMF raised the 2011 world growth forecast by 0.2 percentage points to 4.4 percent. The IMF’s upward revision was mainly because of a more favourable US growth outlook.
GDP growth is expected to remain just below 4 percent at 3.9 percent for 2012, a marginal upward adjustment from the 3.7 percent expected previously.
Next year, consumer spending growth is set for a further marginal acceleration, while the private business fixed investment is expected to pick up at a faster pace.
“The improved GDP performance should be accompanied by employment growth, but with output growth projected to remain below 4 percent, only modest employment gains are expected.
“After 322 000 formal non-agricultural sector jobs were lost in 2009/10, the BER forecast that only 267 000 formal sector jobs will be created in 2011/12,” said the BER. This meant that even at the end of 2012, the level of employment will still be below the peak reached during 2008.
“Nevertheless, the projected employment gains – along with sustained strong wage increases and the further roll-out of government’s social grant programme – are expected to be the key drivers of real disposable income and consumer spending,” it said.
Albeit the general price level of the consumer price inflation (CPI) slowly raising, CPI remains well within the Reserve Bank’s 3 to 6 percent target band. In January, CPI accelerated to 3.7 percent year-on-year after reaching a low of 3.2 percent in September 2010.
“Going forward, the SA inflation environment is expected to be less benign as the low base in 2010, the impact of a projected weaker rand exchange rate and (importantly) higher commodity prices feed into local price pressures. The adverse consequences of the higher oil price have already been felt – the local petrol price has increased by 92c/litre since September 2010, with another hefty rise of around 30c/litre on the cards for March. Food price pressure is set to build through 2011.”
In the first half of 2011, the BER expects consumer inflation to remain well contained while price pressures are set to build in the second half, with CPI expected to end 2011 just below the 6 percent mark, giving a CPI average for 2011 of 4.7percent.
In 2012, CPI is forecast to average 5.7 percent. “Looking towards 2012, higher economy wide capacity utilisation rates, multiple years of double digit electricity price rises and continued projected robust wage increases may result in a further acceleration in price pressures as second round effects take hold.”
On the repo rate, the combination of a rising inflation profile, the recent weakening of the rand exchange rate versus the US dollar and strong consumer spending argues against a further reduction.
“While the central bank is likely to hold off on raising the interest rate for as long as possible, the BER forecasts a first 50 basis points rate hike in November 2011, to be followed by another 100 basis points worth of rate hikes during the first quarter of 2012. These increases will take the repo rate to 7 percent and the prime lending rate to 10.5 percent.”
While the rand has outperformed other currencies in December 2010, it has subsequently weakened sharply so far in 2011.
“Since the start of the year, the rand has not only underperformed versus comparable currencies such as the Australian dollar and Brazilian real, but is also one of the worst performing currencies tracked by Bloomberg. Furthermore, the losses have not been limited to only against the US dollar – the rand is down 10 percent versus a basket of currencies of SA’s major trading partners in the year to date.”
The BER does not expect the currency to continue to weaken at the same pace as seen since the start of the year.
“A number of factors, including low developed country interest rates and high commodity prices, should continue to support the local unit. The rand is expected to end 2011 around current levels of R7.30/$.” – BuaNews
Alan Straton
Latest posts by Alan Straton (see all)
- South African Conquers Rats on the World Stage - 30 October 2026
- Old JPG on a Memory Stick? Vectorization Studio in Observatory Redraws Faded and Low-Resolution Logos by Hand - 30 October 2026
- ReAutomated Adds Robot Palletising and Case Packing Cells to Existing South African Packing Lines Without Stripping Out the Conveyors - 30 October 2026
- From a 5 KM Sprint to an Ultra: Punisher Sets Out Its Magaliesberg Obstacle Race Formats for First Timers, Teams and Fitness Clubs - 30 October 2026
- Rotary or Dual Action? Germiston’s Polisher Lists Its Machines, Buffs and Compounds for Car Paint and Metal Finishing - 30 October 2026
