by Vuyani Ndaba

Slow growth for SA

Economists air concerns regarding SA's growth prospects

Economists air concerns regarding SA's growth prospects
Pravin Gordhan

South Africa's growth prospects have dimmed over the past month, with economists cutting their full-year outlook following a disappointing first quarter, a Reuters poll showed.

The threat of further labour unrest in the mining sector, which produces about half of the country's exports, is a concern along with weak demand in the eurozone – one of South Africa's biggest trading partners.

The consensus forecast for growth in Africa's biggest economy this year was slashed to 2.2%, from 2.6% in last month's poll, and would mark a slight slowdown from a 2.5% expansion in 2012.

The South Africa Reserve Bank forecasts 2.4% growth this year.

The downgrade was partly due to simple maths. Economists cut their full-year forecasts after a poor first quarter, when annualised growth slowed to 0.9% – the worst quarterly growth rate in four years.

"Two issues are holding back economic growth: prolific strike action which is undermining the supply sectors, and the recession in the eurozone, now into its sixth consecutive quarter of contraction," said Colen Garrow of Meganomics.

The poll showed that 17 of 20 economists surveyed expect interest rates will stay on hold for the rest of this year. Three forecast that rates will fall by 50 basis points before year-end.

The central bank kept interest rates at 5.0% at its meeting in May, a four-decade low, and said it had discussed the possibility of a rate cut.

Inflation will probably remain elevated this year due to a weaker exchange rate. The poll forecast inflation would average 5.9% this year, just below the top end of the central bank's 3-6% target range. It is expected to moderate next year, but not by much.

Economists see the economy picking up in the next few years and have pencilled in a 100 basis points rise in interest rates by 2015.

A separate foreign exchange poll forecast the rand will remain weak over the next year due to expectations of a persistently wide current account gap.

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