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Jan 31, 2007

Gauteng economy feeling pressure from higher rates, inflation

© Reuse this The Gauteng economic environment faces its toughest economic challenge since 2003, with higher interest rates and inflation placing great pressure on businesses, the Gauteng Business Barometer (GBB) for December indicates.

The GBB is a measure of economic growth and the business mood in the province and was developed through a partnership between the Gauteng Business newspaper, Standard Bank and economist Mike Sch�ssler.

The index for December slipped by 6,2%, from 154 to 145 index points, compared with its performance in November, Standard Bank said on Wednesday.

The index was also 4,8% lower than in December 2005, when it stood at 152 index points.

Sch�ssler said that the GBB for December clearly showed that it had become difficult to do business in the province. The economic stress index, a subindex of the GBB that measures negative economic factors, was at its highest level since 2003.

“It is driven up by higher inflation and interest rates, as well as an increase in civil debt judgements and a downswing in the creation of new jobs,” he noted.

Sch�ssler added that, although he expected more interest rate increases of between 25 and 50 basis points over the next few months, the negative impact on the economy could be at its peak.

Standard Bank chief economist Goolam Ballim added that, even though the GBB had slipped in December, he expected continued economic growth in Gauteng for 2007.

“The effects of higher inflation and a slowdown in the growth of property values on consumer spending is becoming more evident. Investment in infrastructure and the weaker rand will benefit the supply side of the economy and the growth drivers of the economy will therefore shift from consumers to producers.”

Ballim was confident that businesses would continue to cope with a volatile currency, which was at the mercy of domestic and international events.

He predicted that the rand would trade around R7,35 and R9,53 against the dollar and euro respectively, in 2007.”

He expected a stable year for interest rates, which could even start to decline at the end of the year.

Both Ballim and Sch�ssler agreed that 2007 would be a positive year for Gauteng’s economy, although the economic growth rate would be slower than achieved in the past few years.

Edited by: Nelendhre Moodley
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