I-Net Bridge

SA’s gross domestic product (GDP) growth is expected to ease to just below 5% in 2006 from just above 5% this year, as consumer demand wanes. The median forecast for next year is 4.9% with a range of 4.5% to 5.3%.

In the first three quarters of this year, real GDP, as measured from the production side, grew by 5.1% year-on-year after a 4.5% rise in 2004.

When estimated from the demand side, which is how most economists compile their forecasts, real GDP growth in the first three quarters of this year grew by 6.3% from 4.4% in 2004.

Household consumption expenditure is forecast to slow to the 5.5% level next year from 6.9% in the first three quarters this year and 6.5% in 2004 and 3.5% in 2003. The easing in growth is likely due to the waning of the easier monetary policy stimulus.

The Reserve Bank implemented a 150 basis points cut in interest rates in mid-June 2003, which was the first cut in interest rates since September 2001.

There was a further 100 basis points cut in mid-August, a 100 basis points cut in mid-September, a 150 basis points cut in October and a 50 basis points cut in mid-December. In 2004, the Bank cut rates by 50 basis points in August and implemented a further 50 basis points cut in April this year.

The slowing in consumer demand is already evident in retail sales growth with September real retail sales easing to a 4.7% increase after a 8.2% rise in August and this year’s peak gain of 9.3% in April.

The optimists expect export growth, which increased by 13.2% in the first three quarters of this year after a 2.5% gain in 2004, to continue to boom next year on the back of improved logistics efficiencies and multi-year high commodity prices.

South African exports of bulk commodities increased by 10.6% in November to a record 10.813 million tons.

Gold traded at its highest level since 1981 when it reached 541.80/oz on December 12. The pessimist believe that fears about a possible interest rate hike will constrain consumer demand, while government promises of increased fixed investment will not be translated into action.

General government fixed investment only grew by 4.2% in the first three quarters of 2005 compared with a 12.0% gain in 2003, which slowed to 6.3% in 2004.

In May 2003, SA entered its longest "upward economic phase", as the previous longest upward phase lasted from September 1961 to April 1965. The current upward phase started in September 1999.