DOMESTIC expenditure by consumers, business and government, was likely to slow this year, despite resilient demand in the first quarter, said economists at Merrill Lynch.
Sluggish local demand will add to the woes of the export sector, resulting in gross domestic product (GDP) not rising more than 1,8% this year, predicted Merrill Lynch economists Jos Gerson and Nazmeera Moola.
While domestic demand remained fairly robust rising by 3,7% in the first quarter the delayed effect of last year's four interest-rate hikes, coupled with the stronger rand and negative real wage growth would push economic growth lower this year, reasoned Merrill Lynch.
Evidence that domestic demand had remained resilient in the face of a sharp slowdown in external demand prompted Merrill Lynch to conduct an anecdotal survey among 15 local firms in various sectors to gauge business sentiment.
The survey found that while retailers were optimistic that consumer demand would hold steady during the year, firms in the motor, transport and packaging sectors expected dismal business conditions.
As a result, output growth is likely to be weaker in the second half of the year, resulting in an increase in GDP of only 1,8% this year, compared to last year's 3% growth, Merrill Lynch said.
Retailers expect lower interest rates to boost consumer spending on durable and nondurable goods during the year and next year. The sentiment was fairly mixed, with retailers in the food and beverages sector recording nominal sales growth of between 15% to 20% year on year in May, the clothing sector suffering from poor local and international demand.
There were indications that import demand had outstripped exports this year, with transport companies indicating more activity from Durban to Johannesburg this year, rather than the other way around.
Firms in the construction sector were also much more positive, with demand likely to come from government infrastructure projects.
However, consumer demand was likely to take a knock from falling real wage growth and rising unemployment as a result of a contraction in export-reliant sectors, according to Merrill Lynch.
"Given the uncertainty of the current situation, the outlook for consumption growth seems dependent on the upcoming wage settlements and the speed at which the Reserve Bank cuts interest rates. We are looking for 100 basis points (cut) in August to be followed by a further 100-150 basis points by year-end, thus leaving rates at the levels we saw at the start of 2002," said the Merrill Lynch economists.
Jul 09 2003 08:05:10:000AM Nasreen Seria Business Day 1st Edition
Publisher: Business Day
Source: Business Day
SA may see lower growth this year.
Posted On Thursday, 10 July 2003 02:00 Published by eProperty News
DOMESTIC expenditure by consumers, business and government, was likely to slow this year, despite resilient demand in the first quarter, said economists at Merrill Lynch.
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