SA economy seen building this year

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Filomena Scalise

Johannesburg - South Africa's economic growth will gradually improve this year, boosted by better demand from its major trading partners and a favourable exchange rate for exporters, a Reuters poll found on Thursday.

The poll of 20 economists, taken in the past week, showed median predictions for growth this year to accelerate to 2.8 percent, unchanged from last month's consensus, while next year's pace will be 3.2 percent.

“We expect a modest growth acceleration, partly from an improvement in net trade on the back of accelerating global growth and ongoing rand weakness,” said Elna Moolman, an economist at Macquarie Securities.

Though growth in South Africa is below potential compared with the last five years, excluding recessionary 2009, it is still an expansion from last year, estimated to have been around 1.9 percent.

South Africa's economic growth slowed to 0.7 percent in the third quarter of 2013 after expanding by a revised 3.2 percent in the previous three months. Consensus estimates for last year suggest growth would have slowed to 1.9 percent.

The rand has fallen over 20 percent over the past year, which is good for the country's exports, provided it does not weaken to the extent of threatening the inflation target.

The country's current account deficit, has also been under pressure, it widened in the third quarter of last year to its biggest in five years, dragging on the rand.

Still, the poll suggests a slightly narrower deficit this year at 5.8 percent of the gross domestic product from last year's estimate of 6.1 percent of GDP, possibly shrinking to 5.4 percentage deficit next year.

The survey also shows inflation will probably remain closer to the South African Reserve Bank's upper target of 3-6 percent, at a median 5.6 percent this year, before slowing to 5.5 percent next year as exports rise.

Moolman added that inflation should remain contained enough to allow the central bank to keep rates on hold until the economy is on stronger footing, but the risks are biased for higher prices.

“The key upside inflation risks are the ongoing rand weakness and food inflation,” she said.

A separate Reuters poll earlier this month suggested the rand will trade mostly steady in 2014, ending the year at around 10.50 per dollar, boding well for inflation to remain below the SARB's ceiling.

The Reserve Bank, however, is expected to raise rates by 100 basis points in 2015 from their current 40-year low of 5 percent. - Reuters


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