Experts predict a sharp slowdown
A reliable report shows views in conflict with those of the Reserve Bank, writes SVEN LUNSCHE
Their cautious expectations contradict the view held by government and the Reserve Bank that the economy should be able to maintain a GDP growth rate of at least 2,5% in 1997. Growth of 3% is expected to be reached this year.
The survey among the 27 economists is conducted annually by Professional Management Review magazine and has historically proved one of the more reliable indicators of the economy.
It was undertaken shortly after the Reserve Bank raised interest rates by one percentage point last month.
The economists view the rate hike as crucial to the fortunes of the economy as it will significantly slow consumer spending in the year ahead. Their average forecast for private consumption expenditure growth in 1997 is 1,6%, with fixed investment coming in slightly higher at 4%.
However, both the Department of Finance and the central bank have dismissed the impact of higher interest rates on growth, arguing that strong export growth and lower inflation should allow for growth of at least 2,5% next year.
Reserve Bank deputy governor Timothy Thahane said on Friday that "growth of 2,5% and even higher is achievable next year".
Tahane said the economy should receive a boost from an alleviation in interest rates in the first half of next year "if the recent hike in rates achieves its objectives, namely a sharp slowdown in credit spending".
He said higher investment spending, a surge in exports and continued good agricultural production would offset the fall in consumer spending.
The PMR survey shares the central bank's views on interest rates. Most economists forecast a prime rate of 18,25% by year-end. Prime is currently set at 20,25%.
Among the other major forecasts for 1997 are an average inflation rate of 8,9% and a rise of 1% in government consumption expenditure.
The latter figure is an important indication that the private sector is convinced of the state's commitment to cut spending over the next few years. The economists concur that the Department of Finance will achieve its targeted deficit of 4% for the 1997/8 fiscal year.
One of the more surprising findings of the survey is that the majority of economists believe the government will implement its macro-economic strategy successfully in 1997. Previously the private sector and the market took a dim view of the state's ability to push through the plan.
All of the experts feel that monetary policy will remain tight in 1997.
The survey also paints an optimistic picture for 1998, with most economists expecting stronger growth than in 1997. Almost three-quarters of the 27 economists forecast growth of between 2,6% to 3,4% in 1998.
The survey follows on a week in which the impact of the declining rand became increasingly evident. The trade surplus in October soared to a record high of R3,9-billion amid a surge in exports and slower import growth.
Producer price inflation, however, showed the effect of the weaker rand with imported producer prices rising by 7,7% year-on-year in October, 3% up on September's 4,7%. ¥ PMR will publish the full findings of the survey in its next edition available on Wednesday. ¥ South Africa's total foreign reserves rose by R651-million last month to R10,94-billion from R10,28-billion in October, the Reserve Bank said on Friday. The foreign currency reserves climbed by almost R1-billion, or 23,3%, to R5,02-billion, while gold assets fell R302-million to R5,91-billion.