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The best ‘guess’ for SA macroeconomic indicators through 2010

24 January 2010 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

Every year economists busy themselves with predictions for GDP growth, inflation, interest rates, currency and associated macroeconomic indicators. They vainly attempt to call rising and falling trends and quarter-end levels for the rand against a basket

Rian le Roux, chief economist at Old Mutual Investment Group South Africa made no promises when talking journalists through the group’s macroeconomic outlook for 2010. He even stumbled over the group’s estimate for domestic GDP growth, saying the 3.7% pencilled in on their slide, was, in his view, a trifle optimistic.

Making a hash of 2009

Early in his presentation, Le Roux introduced 2009 as a year of macroeconomic surprises! Real measures of economic performance diverged significantly from economists’ consensus for a range of measures. Growth weakened much more than expected as household consumption expenditure and exports plummeted. As a result the early predictions of low positive GDP growth were quickly replaced by expectations of a 1.7% contraction. The rand proved extremely difficult to call too. Le Roux said the domestic currency firmed much more than expected, ending 2009 at around R7.50/$.

The real ‘surprise’ in 2010 came from inflation and interest rates. Inflation fell less than predicted as domestic prices proved ‘sticky’ on the way down. Who is to blame? Consumers usually point fingers at greedy retailers who are quick to hike prices when food prices increase, but slow to act in reverse. Another culprit is the fuel price which increased significantly as oil recovered from its March 2009 $30/barrel nightmare. State power supplier Eskom’s role in higher inflation cannot be overlooked either. The group hiked electricity prices in the region of 40% through 2009 and is begging for another 35% increase each year till 2012. CPI will probably end 2009 at 6.7%, just outside the Reserve Bank’s 3% to 6% target band.

“Interest rates fell more than expected through 2009,” said Le Roux. Economists were divided on how interest rates should be used to combat the general economic slowdown. Some urged the Reserve Bank to cut rates aggressively by 200 basis points a time, while others argued for a slow and steady series of rate cuts through the year. The latter had their way and the governor dropped rates by 450 points though the year in increments of 50 and 100 basis points. As we enter 2010 the prime mortgage rate is pinned at 10.5%.

Throwing darts at the numbers for 2010

After our comments in the opening paragraph you will probably wonder why FAnews Online is bothering with OMIGSA’s macroeconomic forecasts for 2010. The best reason we can give is that an educated guess is a good starting point to base expectations for the coming year. As South Africa follows the rest of the world out of recession, economists will pay close attention to the Statistics SA quarterly GDP number.

OMIGSA makes a number of points about likely economic growth through 2010. They expect private sector demand to remain weak in Q1 2010 on the back of poor household consumption expenditure and gross fixed capital formation. And they believe the public sector, export and inventory cycles are already on the front foot ready to accelerate growth through the second quarter. “We are expecting both consumer spending and private sector investment to remain weak for another quarter or so,” said Le Roux, “but growth momentum should accelerate from the second quarter onwards as private demand recovers.” The group’s 3.7% estimate for full-year 2010 GDP growth is well above consensus.

Inflation is going to be difficult to get a handle on. The group’s inflation forecast model allows assumes the rand/dollar exchange at R7.50/$ end 2009 and R8.25/$ end 2010. Oil is pencilled in at $75/barrel and $85/barrel while food price inflation is 3.5% and 6% respectively. The big ‘shock’ to the economy will be from Eskom’s 35% hike this year and next. Given these parameters inflation will probably dip below 6% for most of this year, ending 2010 at 5.6%. The group expects interest rates to remain flat through the year. If the economic recovery fails to gain momentum there is a slight chance (Le Roux estimated 20%) of a small interest rate cut later in the year. This cut would require that inflation surprise on the downside and the rand remain strong.

“After the year of big macroeconomic surprises that was 2009, our first examination of our forecasts for 2010 paint a much quieter scenario – with relatively steady inflation, interest rates, currency and economic growth ahead,” said Le Roux. He believed that most South Africans would welcome such stability, but warned the situation could change dramatically due to “unexpected shocks” lurking in the shadows!

Editor’s thoughts: There you have it. As you exit 2010 you can expect GDP growth of 3.7%, you will pay R8.25 for each US dollar, and inflation (5.6%) and the prime lending rate (10.5%) will be virtually unchanged from the previous year… Do you pay undue attention to macroeconomic forecasts? Add your comments below, or send them to


Added by Rina de Jager, 26 May 2010
What do you think will happen to the South African Economy in two years time in terns of the most important macroeconomic indicators and the trends over the next two years.
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