Kevin O’Grady
Economics Editor
BUSINESS and economic confidence soared last month on the back of slower than expected price increases and the prospect of a revival of export-led economic growth.
The latest business confidence index (BCI), compiled by the South African Chamber of Business (Sacob), and the separate Reuters Econometer both reflect growing optimism about SA’s economic prospects and the conditions for doing business.
The Econometer, a confidence index compiled from a survey of 15 economists, jumped to a record 270,32, from June’s 262,89. The BCI climbed to 129
— its highest level in 10 months and just short of the record reading of 130,9 set in September last year.Benign inflation contributed strongly to the high Econometer reading. In three successive months inflation data have come in below market expectations, despite surging international oil prices and a rand that has lost almost 14% against the dollar this year.
"What has surprised up to now is the fairly benign impact of the international oil price on domestic inflation. That, combined with fairly low increases in food prices, culminated in the overall level of inflation being a bit lower," said Vector Securities economist Johan Rossouw.
The economists surveyed gave their forecasts for six indicators, and have revised their CPIX inflation predictions downwards from June’s. The survey forecast CPIX
— the measure targeted by the Reserve Bank — averaging 4% this year, before edging up to 4,83% next year and slowing down to 4,64% in 2007.In the June survey, CPIX was seen averaging 4,18% this year, 5,09% next year and 4,88% in 2007.
CPIX, which excludes home-loan interest payments, rose an annual rate of 3,5% in June, from 3,9% in May, and has stayed within the Bank’s 3%-6% target range for 22 consecutive months.
Economists are divided about whether there is room for another interest-rate cut, with most predicting a small rate hike early next year. A minority believes, however, that the Bank may cut rates next week.
"There is scope for another cut, given that we have seen better than expected outcomes in CPIX for three consecutive months," said Elize Kruger, economist at Kagiso Securities.
Sacob economist Richard Downing said the BCI survey showed there seemed to be "welcome" change taking place in SA’s economy, with exports growing and domestic demand slowing.
Spending by South Africans got a boost after the Reserve Bank unexpectedly reduced its key lending rate half a percentage point in April to ease the effect of the 86% gain seen by the rand to the dollar since the end of 2001.
However, June’s surprise swing into the black by the trade balance to the tune of R1,3bn, in contrast to the previous month’s R2,8bn deficit, is evidence of a pick-up in exports.
"Sacob always maintained that a reasonably priced rand could further initiate an export-led revival," Downing said. "The rand depreciation clearly plays a significant role in the rand price of commodities, as it does with other exports.
"The export of manufactured goods increased in the first six months of this year. This suggests that the manufacturing sector remains globally competitive and can even improve if the rand maintains a reasonable exchange rate." With Reuters, Bloomberg
Publisher: Business Day
Source: Business Day
