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Nov 02, 2007

SA will hit 'magical' 6% growth by 2010 – analyst

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FNB property analyst John Loos on the likelihood of more interest rate hikes (02/11/2007)
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© Reuse this The spate of interest rate hikes over the past several months could have peaked, offering South African consumers something of a breather, while the country is on its way to reaching "that magical mark" of 6% economic growth in 2010, an economist said on Friday.

Further good news was that inflation could begin to slow, as current levels were not sustainable, FNB property economist John Loos said.

"There are signs that the global food price inflation will drop," he told a Johannesburg conference. "We have seen a decline in the past couple of months."

"That's big, because about 26% of our consumer price inflation index (CPIX) basket is food," Loos highlighted.

He said that there could still be some more upward movement in the CPIX, but that its peak was not far off.

"The Reserve Bank have finished with their interest rate hiking," Loos put forward. "By December's meeting, they will probably have decided that they have done enough, and will hold interest rates where they are for a while."

This would be comforting news to the big-spending South Africans who had been slapped with three successive rate hikes this year, in Reserve Bank governor Tito Mboweni's determined efforts to curb inflation, and encourage saving.

However, the Reserve Bank had sprung surprises on the public before, and could do so again.

Dollar due to head further down

The dollar, which has taken a big knock since the subprime mortgage crisis swept the US, has still got its eyes to the ground, which bodes well for a stronger rand, Loos stated.

"The dollar had a few years of weakness ahead," he said. Traditionally, there was an inverse correlation between the strength of the US dollar and the rand.

The US had a current account deficit of some 6% of its growth domestic product, which had far deeper implications than South Africa's current account deficit, owing to the sheer size of the US economy, said Loos.

"The dollar's weakening cycle is far from complete, it has got some way to go."

"We've got some good times ahead for the rand's strength," he commented.

Current account deficit no danger yet

South Africa's current account deficit is not a big danger yet, but it will become a problem in a couple of years time if it continues, Loos went on to say.

Finance Minister Trevor Manuel did not express much concern about the country's yawning trade gap when he presented his medium-term budget speech to Parliament on Tuesday.

Economic growth

Loos was sanguine on South Africa's growth prospects, predicting that economic expansion could reach 6,1% in 2010, which was in line with government targets.

"I believe we are going to head for 6% economic growth," he said, adding that growth would average at 4,6% this year.

He pegged growth at 4,9% in 2008, and climbing to 5,5% in the following year.

It would be in 2010 that he believed South Africa would reach "that magical" mark of 6,1% economic growth, added Loos.

"Sustaining that for 10 or 20 years is another thing, though," he said.

Loos said that one shouldn't overemphasise the influence of politics on economic performance. The ruling African National Congress was gearing up for the election of its new leader at the end of the year, which had caused uncertainty over the effect that a change of leadership could have on economic policies.

Potential candidates for the position included incumbent Thabo Mbeki, Jacob Zuma, Tokyo Sexwale and Cyril Ramaphosa.


Edited by: Mariaan Webb
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