Ex-QDMS

Despite the last quarter of 2011 showing upbeat economic indicators for KZN, 2012 is expected to be a lacklustre year for economic growth in the face of the negative impact of the Eurozone financial crisis.

That’s the general consensus of local economists canvassed by The Mercury this week, before the State of the Nation Address and 2012 Budget Speech in the next two weeks.

February marks the acceleration of the work year, with keynote speeches by President Jacob Zuma and Finance Minister Pravin Gordhan expected be key pointers for government priorities for 2012.

Pietermaritzburg-based economist at the KZN Treasury Clive Coetzee said he expected an “uneventful year” on the economic front and predicted the KZN and SA economy would continue to “bob along”, averaging GDP growth of about 3 percent.

“Barring any major shocks from the EU situation, it’s expected to be an average year. However, spiralling energy costs, including electricity and a volatile oil price, could also scupper growth to even lower levels. We can’t afford that, and should aim for at least 3 percent growth this year.

“We already have a fuel and LP gas increase this week, but there are concerning signs that it could go higher in the wake of the stand-off between Iran and the West. If oil goes to around $150 a barrel, which some people have predicted, than we are in trouble. It will be an energy-price double whammy of high fuel costs on top of the spike in electricity,” said Coetzee.

He said big increases in the cost of electricity were expected to continue. There was also a risk of volatility of the fuel price because of the EU-US stand-off with Iran over its nuclear programme.

“For KZN, high energy costs are a bigger a problem because we have a large manufacturing sector already facing reduced export demand from our biggest trading partners – the EU. Another important sector, the logistics and shipping industry, will also be under pressure.”

Last week the KZN Treasury released the KZN Business Barometer and Investment Monitor reports, which included latest available data for 2011, covering October and November.

The report, compiled by Mike Schussler of Economists.co.za, showed the provincial economy accelerating towards the end of the year and growing 6.7 percent year-on-year in November.

It also showed that fixed investment in the province grew by 19.1 percent quarter-on-quarter in October last year, the strongest growth in at least nine years. On a year-on-year basis, total fixed investment grew by 18.4 percent.

The report said economic expectations for KZN were good, “as proven by recent strong growth in fixed investment in the province”.

But, Coetzee said while the report showed positive signs, the indicators were not GDP figures. Ultimately annual growth was the key figure and he was expecting average growth for KZN in 2012.

Coetzee added that the investments were mainly in imported IT and transport equipment. This would not bolster KZN’s local manufacturing capacity, which was the real driver of economic growth.

Durban economist Bonke Dumisa said despite recent downgrades in Europe he expected KZN to outperform national economic growth, even if it was marginally.

“This report shows positive indicators and I expect growth of between three to 3.5 percent for KZN… ”

Dumisa said it was possible that major ongoing long-term investments, such as Dube TradePort and into the Durban Port, were delivering earlier-than-expected economic spin-offs, and spurring private sector investment.