SA GDP growth seen slowing due to rising net imports

Articles: SA GDP growth seen slowing due to rising net imports

Posted by admin on Monday, March 20, 2006 - 08:27 PM

REAL gross domestic product growth will slow to 4,1% next year from a forecast 4,6% this year and an estimated 5,1% last year, Jacques Botha, a senior economist at the Bureau for Economic Research (BER) at the University of Stellenbosch told a media briefing at the Bond Exchange of SA.
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"SA is currently in a Goldilocks situation with economic growth not too hot and not too cold. But rising net imports, which means that we consume more than we produce, implies that growth will slow, even though domestic demand remains robust near the 5% level," Botha said. Despite the widening current account deficit, the BER is expecting the rand to remain stable this year due to support from high commodity prices, but next year, a 13% drop in the trade-weighted rand is forecast with the rand averaging R7,3 per US dollar in the fourth quarter 2007. Household consumption is forecast to slow to 3,9% next year from 4,7% last year and 6,7% in 2005, as the consumer will not receive any boost from declining interest rates, which have been cut by 650 basis points over the 2003 to 2005 period. Instead, the BER expects the prime rate to remain at 10,5% until at least the end of next year with inflation staying in the Reserve Bank’s inflation target range. The major boost for domestic demand will come from gross fixed capital formation, which is forecast to rise to a real growth rate of 9,5% in 2007 from 8,3% in 2006 and 7,9% in 2005. "The risk to the Goldilocks scenario is that the rollout of the public sector’s massive infrastructure spending takes place faster than we anticipate, so putting even more pressure on the current account and already scarce resources in the construction sector," Botha said.

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