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Economic roadshow paints bleak picture

The macroeconomic strategist forecast that interest rates may be cut while the rand should also strengthen by early next year.

NELSPRUIT – One hardly needs an expert to tell South African consumers that the country’s economic recovery post-2008 is losing steam. The petrol price hike of 32 cents a litre, pushing the petrol price to R13,55 this Wednesday, was yet another reminder to keep pinching those pennies.

“Economists might not be very highly regarded after we failed to make certain predictions we arguably should have,” said Ms Nomvuyo Guma, a macroeconomic strategist with Standard Bank. She was speaking at the bank’s economic roadshow at Ingwenyama Conference and Sport Resort on Tuesday.

It was the first time this economic briefing, which offers the bank’s clients its view of the economy, came to Nelspruit and the planned 11-stop show kicked off in Mpumalanga. “Unfortunately we don’t have a crystal ball,” Guma said. “All we can do is look at the data to determine where the trends are going.”

She attributed the latest petrol hike directly to the weak rand, but said Standard Bank expects the currency to recover a little by next year, but not by much. Guma explained that its present weakness (R9,91 on August 7) was driven by fears in the external markets and once these settled down, South Africans could expect to pay R9,50 for a dollar by 2014.

But consumers would remain under pressure from rising prices, such as for petrol, electricity and consumables. As a result, consumer spending would remain low.

Given that this contributes roughly 60% of national gross domestic product (GDP) and has, according to Guma, been propping up the economy since the international market meltdown in 2008, growth is set to remain low, and much lower than that forecast for other emerging markets. In the first quarter, the economy recorded growth of 0,9%.

China’s growth is also slowing, while South Africa’s export economy is closely tied to it. “South Africa is looking increasingly vulnerable from an export point of view,” Guma said.

Good news for consumers is that the bank does not think the interest rate will increase, and instead forecast that it may be cut early next year since inflation is not driven by consumers who are spending their money on necessities.

However, Guma said the bank would not be surprised if the country got another ratings downgrade due to less expected tax revenues, but the government’s infrastructure projects offered a bright spot. A R3,6 trillion investment in infrastructure was announced earlier this year. Yet, Guma cautioned that the government’s consistent underspending of their targets was a risk.

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