Growth of 4.5% possible in 2008

The data on South Africa’s Gross Domestic Product (GDP) for the third quarter of 2007 was released today and showed that the economy’s performance was stronger than expected. The seasonally adjusted and annualised rate came in at 4.7%, and even a lacklustre performance of 4% in the fourth quarter of 2007 will see the year as a whole return a 5% outcome.

But the real issue relates to what lies ahead. With another 50 basis points expected from the SA Reserve Bank's Monetary Policy Committee next week (taking prime to 14.5%), and high food and fuel prices set to remain, there is more than an even chance of overkill eventuating. The rand has lost 50c to the US Dollar since November 6th and the petrol price under-recovery stood at 56c last Friday. A 40c per litre increase in December pump prices will drain another R400 million from consumers’ pockets.

I remain steadfastly of the opinion that the slowdown in manufacturing and consumer spending will be all but counteracted by the boost from infrastructural and associated spend and that growth to the order of 4.5% is still possible next year. However, if the rand tanks and inflation does not fall sharply from February 2008 as expected, prime of above 15% may thwart these hopes.

There is serious doubt as to the reliability of the official sequestration and civil debt data, given that our experience suggests a serious degree of corporate financial stress emerging. To that end the October liquidation data due for release on Thursday 29 November is eagerly awaited.

Comment by Luke Doig, Senior Economist at Credit Guarantee Insurance Corporation