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Send  Share  RSS  Twitter  17 Feb 2011

ECONOMY: A Brighter Outlook For Growth


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Stellenbosch's BER says recent economic data strongly suggest that SA GDP growth accelerated towards 4% quarter-on-quarter (annualized) in the final quarter of 2010. The more upbeat data follow a loss of growth momentum in mid-2010 when the economy expanded by only 2.6% q-o-q in 2010Q3. Growth of 4% in Q4 would result in the economy expanding by 2.7% for 2010 as a whole following the contraction of 1.7% recorded in 2009. Importantly, the growth recovery to date has not been broad-based with robust consumer spending providing most of the impetus, while fixed investment remains poor, albeit slowly gaining traction.

Despite sovereign (especially European) debt concerns and rising fears about a build-up of especially emerging market inflationary pressures, global economic prospects have also improved. In its January 2011 World Economic Outlook update, the IMF raised the 2011 world growth forecast by 0.2 percentage points (% pts) to 4.4%. The IMF’s upward revision was mainly because of a more favourable US growth outlook after the extension of tax cuts that would have expired at the end of 2010.

For 2011, the BER has made an upward revision to the SA GDP growth forecast of 0.4% pts to 3.8%. The improved outlook stems mainly from a more optimistic projection of household consumption expenditure (4.3% versus 3.7% expected in October 2010). The result is that gross domestic expenditure (GDE), the broadest measure of domestic spending that includes fixed investment, government expenditure and inventory investment, accelerates to growth of 4.8% during 2011 from a projected 4.3% in 2010.

GDP growth is expected to remain just below 4% at 3.9% for 2012, a marginal upward adjustment from the 3.7% expected previously. Consumer spending growth is set for a further marginal acceleration in 2012, while one should also start to see private business fixed investment picking up at a faster pace. The improved GDP performance should be accompanied by employment growth, but with output growth projected to remain below 4%, only modest employment gains are expected. After 322,000 formal non-agricultural sector jobs were lost in 2009/10, the BER forecast that only 267,000 formal sector jobs will be created in 2011/12. This means that even at the end of 2012, the level of employment will still be below the peak reached during 2008. Nevertheless, the projected employment gains - along with sustained strong wage increases and the further roll-out of government’s social grant programme - are expected to be the key drivers of real disposable income and consumer spending.

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