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UNIT TRUSTS:RMB Balanced Fun... A spurt of growth upon retiremen... Has Wall Street succumbed to "mad bull" ... Betting on a bottle of the best bubbl... Taking on the role of trustee ... |
Waiting for that rate cut
ECONOMIC OUTLOOK
CONSUMERS who are mortgaged to the hilt can expect a cut in the interest rate of 1% or 2% before the year is out, says Pierre Faure, consulting economist to Southern Asset Management. And more good news for borrowers is that another two cuts in the interest rate are possible next year. The weak economic scenario and expected lower monetary growth later this year, together with the healthy balance of payments situation and declining inflation should prompt a lower interest rate. Faure says economic growth for the rest of this year will be modest - about 1.5% to 2%. "There are a number of constraints on growth, the most important being the high level of interest rates in both nominal and real terms, and the large differential between our inflation rate and those of our main trading partners." Improved factors will contribute towards higher economic growth next year of about 3.5%. On inflation, Faure's view is that the consumer price index could be about 7.5% towards the end of the year, and at about 6% by the end of next year. He warns, however, that consumer prices could rise sharply as the economy gains momentum next year and in 1999. Consumer spending will pick up next year, Faure says, thanks to lower interest rates, but will be kept in check by high consumer debt levels and by the Reserve Bank maintaining real interest rates. Fixed investment in the economy will show strong growth in coming years, spurred by a growth in tourism, higher imports, increased housing delivery and infrastructure spending. On the value of the rand, Faure says a positive sentiment towards South Africa is critical, since any adverse news in respect of financial policies and socio-political development can have a major impact on capital flows. "In the absence of this, which is likely, the rand will tend to be stable in real terms. "In the long term one cannot help being optimistic," Faure said. "Monetary and fiscal policies will continue to be conducted in a responsible and conservative manner, leading to lower inflation and higher, more sustainable growth." Faure says there are several reasons for optimism in the economy for next year and beyond:
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