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The Reuters survey showed increasing pessimism about SA economic growth
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May 08, 2008, 12:15
South Africa's economic confidence fell to a 5-1/2 year low in April, weighed down by expectations of slower growth, higher inflation and a longer cycle of tighter monetary policy, a poll showed today.
The monthly survey of 20 economists showed the Reuters Econometer, which measures six weighted indicators, dived to 207.50 last month, its lowest since November 2002, from 231.39 in March.
The poll confirms deteriorating sentiment in South Africa, after a separate study, released yesterday, put business confidence at a 4-1/2 low in April.
The Reuters survey showed increasing pessimism about economic growth, with average expansion for 2008 seen at 3.58% in April after 3.74% in the March poll, while expectations for 2009 growth had fallen to 3.86% from 4.21%.
A persisting power shortage and higher interest rates are seen to be strangling industry. The central bank has raised the repo rate by 450 basis points since June 2006 to 11.5% as it struggles to arrest Consumer Price Index (CPIX) inflation which has stayed above its 3 to 6% target range since April 2007.
State utility Eskom is battling to meet demand for power with its ageing infrastructure and has cut supply to industry and households. It said last week it would stop planned blackouts, for now.
The central bank briefly halted its monetary tightening in January, resuming again with a 50 basis point rise in April.
Another rate rise
With inflation now in double digits at 10.1% year-on-year in March, economists are increasingly expecting another rate rise in June - at the very least.
The survey showed April expectations for the repo rate higher at a mean 11.92 by the end of the year, up from 11.07 in March. It was seen at 10.94 in 2009, from 9.77 % previously.
Targeted CPIX inflation was also seen staying outside the target for longer, with the April survey showing the average for the year up at 9.58% from last month's 8.75, and at 6.68% for 2009 from March's forecast of 5.97%.
Eskom has asked for a 53% real tariff increase to help fund its R343 billion spending over the next five years. The final decision on this is due on June 6. Odendaal said CPIX would remain above the band until 2010.
Analysts were, however, slightly less bearish on the rand. The latest survey put it at 8/dollar by the end of the year, from an expectation of 8.11 in March, and at 8.27 to the dollar by the end of 2009 from a forecast of 8.37 previously.
Brait economist Colen Garrow said the rand has been undervalued and sentiment had improved towards the currency. "It is undervalued against all other commodity currencies and the current account argument does not hold water. Australia's deficit is just as big but the (Australian dollar) is not down as much as the rand to the (US) dollar," he said.
South Africa's current account deficit stood at 7.3% to the GDP in 2007 and analysts say it makes the rand vulnerable. At 7.50, the rand is 10% weaker to the dollar so far this year, but has much recovered from a near five year low of 8.2450 hit in mid-March. - Reuters
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