Johannesburg - Standard Bank group economist, Goolam Ballim, says he expects the SA economy to maintain its robust growth path in 2006 with the economy forecast to grow at 4.9% in the year ahead.
Ballim was speaking at the annual Standard Bank overview of the economy, this year titled The Economy in 2006.
Interestingly, Ballim expects this to happen despite a moderate slowdown in global economic fortunes that he says will be precipitated by a tightening in monetary policy and consequent lower levels of global liquidity.
"The world economy is entering a global monetary transition that will see incremental monetary policy tightening resulting in reduced global liquidity," Ballim says.
Ballim says the credit spread between European and US interest rates could begin to narrow, with the European Central Bank hiking interest rates in the coming year.
US rates remain steady
He also believes US rates will remain relatively steady with a slight upward bias thanks to continued inflationary wariness on the part of the US Federal Reserve.
"The ECB is only beginning to tighten and therefore the allure of spread [between US and EU interest rates] is disappearing," says Ballim.
"As a result one would expect to see a mildly weakening trend in the dollar this year. Because of this transition yield curves will flatten resulting in softer global economic growth."
Nevertheless, Ballim feels the impact of this will be relatively benign with the world economy still forecast to grow at around 4%.
Ballim also feels the SA economy will remain on a relatively robust growth path with economic growth for 2006 forecast to come in at 4.9%.
Growth in black community
Ballim feels that although the impetus behind SA's consumer driven economic growth will slow somewhat in 2006, it will still be sustained by relatively healthy real income growth of 3% and continued income growth in the black community.
Ballim also forecasts a 5% increase in the amounts allocated to social grants by Finance Minister Trevor Manuel thanks to a projected R40bn revenue overrun.
"Although these grants accrue to the most vulnerable in society they do have a very high propensity to spend," he says.
On the commodity front, Ballim says the market should remain firm but with slower growth than that experienced in 2005.
"The outlook for resources cannot be as lively as it has been and therefore in the latter half of the 2006 the rand will endure some weakness."
However, the local currency is still forecast to stay at an average level of about R6.37/US$ in 2006 while maintaining a relatively steady level of R11.43/£ and R7.83/€.
Not continue indefinitely
Despite the moderate squeeze on global liquidity, Ballim said he did not foresee a sharp reduction in the foreign appetite for local equity, although he did say that the record-breaking levels seen in recent times could not continue indefinitely.
Nevertheless he still forecast enough of an influx in equity buying to keep the local bourse ticking over at a persistently healthy rate.
Ballim did stress however, that his forecast was a "baseline assessment" that did not include the threat of certain exogenous risk factors such as another oil price shock, a crash in the US housing market or a marked slowdown in the Chinese economy.
Barring these external shocks though, Ballim was confident that 2006 would be another buoyant economic year with the local economy enjoying particular upside potential.