'Economic growth to slow to 4%'

Johannesburg - Chief economist of Citigroup in South Africa, Jean Mercier, says he expects a SA growth rate of 4% in 2008, but adds that it should start stabilising towards the second half of the year and then have a bit of a pick-up in 2009. He foresees growth of 4.5% in 2009, with it picking up towards the soccer World Cup in 2010.

He adds that there may also be less of a drag from net exports, while public sector-related investment could help to an extent.

As to the current account, he does not see it widening as much as it has in the past, although it should still be "a bit above 7%" this year. SA's current account deficit is currently running at a whopping 8.1% of GDP from 6.5% in the second quarter.

Chief economist from Investment Solutions, Chris Hart, told I-Net Bridge this week that he sees the growth rate in SA starting to trend to the 3% mark from a current 5%.

Says Mercier: "I think we will see a slowdown - there is no doubt about that. There are plenty of indications around, whether you look at retail sales, vehicle sales, the trade activity index or business confidence. I'm looking for a growth rate of about 4% this year, which is probably weaker growth than consumer demand, but there is still some dynamic in investment driven by the public sector and less of a drag probably from net exports than we have seen over the past couple of years."

Current account

He explains that even though exports will probably slow with US growth and demand decelerating somewhat, imports are likely to slow as well.

"But as consumer demand moderates, some components of investment demand moderate as well, so we could see that," he explains.

However, he adds that the current account deficit remains a problem because the performance of mining and manufacturing exports have been "quite disappointing" over the past few years in real terms.

"But there is quite a bit of improvement in the past few quarters, but it just happens at a time when global demand is going to slow to a certain extent.

So you're not going to get the ability to export your way out of this trade and current account deficit," he emphasises.

Mercier also notes that by curbing consumer demand, import demand is also curbed.

"But there is still room to have fairly wide trade and current account deficits," he adds.

However, Mercier concludes that even if the trade deficit increases because you have accumulated external liabilities, the country still needs to pay dividends to all the foreigners who have bought stock and bonds.

- I-Net Bridge