Picture: David Ritchie
JOHANNESBURG - The majestic  Durban festive ambience will do little to mask the economic hardships expected to gather steam in the new year.

The uptick in inflation has opened the door for a further hike in interest rates, which will put more pressure on indebted households.

Figures released this week by Statistics South Africa showed that consumer inflation picked up from 5.1 percent year-on-year in October to 5.2 percent last month.
November’s consumer price inflation print was also the highest inflation rate since May 2017, as prices continued to climb, mainly for transport.

John Ashbourne, a senior emerging-markets economist at Capital Economics, said inflation remained high in November, suggesting another rate hike in the first three months of 2019.

“Continued economic growth and high inflation add to the likelihood of another 25-basis-point rate hike in the first quarter,” Ashbourne said.
Annual core inflation, which excludes the cost of food, non-alcoholic beverages, fuel and energy, rose to 4.4 percent last month from 4.2 percent in October, the highest rate since May. 

South Africa’s central bank last month raised interest rates by 25 basis points to 6.75 percent , attributing the decision to a domestic growth outlook that remained challenging.  

The rise in inflation towards the upper end of the Reserve Bank’s 3 to 6 percent target range was expected to soften due to subsiding fuel price pressures.

Those wealthy buyers who are looking at getting are moving away from the city in search of their ideal lifestyle in posh suburbs such as La Lucia or those ordinary Joe’s who just want to own a piece of property will also find 2019 will be a challenging year for the property sector.  
Seeff Property chairman Samuel Seeff said consumers would need to be patient for a little while longer as the market was likely to remain fairly flat for the first few months for a number of reasons.

“Consumers and homeowners should also be prepared for further potential interest rate hikes next year, but it highlights that the rate is still at some of the best levels in decades,” Seeff said.

“While the early part of the year will no doubt bring a few challenges, we nonetheless expect the economy and property market to normalise and perhaps start its next upward growth cycle by around mid-year.”

Zandile Makhoba, the head of research for South Africa at real estate consulting firm JLL, said one could argue that 2018 had worked out to be more of a construction year in Durban.

“Developer confidence in the Durban real estate market remains firm, with activity strong across all sectors, and continued growth of mixed-use precincts shaping the coastal city. Improved trade efficiency due to port investment and other public infrastructure is setting a positive tone for economic activity in the year ahead,” Makhoba said.

She added that with 2019 being an election year, all activity was likely to slow across the country’s key markets, as developers and occupiers adopt a wait-and-see attitude to the political situation.

However, she said projects which have already broken ground stand to gain from the emergence of stability post the election period.

The hotly contested elections expected at mid-year are expected to have a significant bearing on how the economy fares next year.  

The consumers and markets will keep a hawk eye on the outcome of what is likely to be the most contested election since the dawn of democracy in 1994.

Old Mutual Investment Group chief economist Johann Els said uncertainty would continue until the elections and that the outcomes of the elections will have significant repercussions for the country’s economy.

“A good ANC election outcome and policy reform would lead to a stronger rand , based on improved confidence, and it could quite likely reach R12 to the dollar in 2019, with increased rand stability over the next few years if growth picks up in the direction of 3 to 3.5 percent ,” Els said.

While the economy is facing many headwinds, not all is doom and gloomy. In as the fourth quarter’s activity data has indicated that the economy strengthened in the quarter following its exit from recession in the third quarter.  

The manufacturing and mining production data and retail sales for October have pointed to an economy on a revival.

“Consumer fundamentals aren’t currently that bad and are likely to improve as confidence improves, as well as being in line with a cyclical economic pickup. In addition, investment could rise sharply again leading to growth possibly reaching 3 to 3.5 percent by 2021/2022,” Els said.

BUSINESS REPORT