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Cape Town – Economists believe Statistics South Africa will on Tuesday release data that shows that little growth occurred the last three months of 2016.
South Africa’s gross domestic product (GDP) growth rate on a yearly basis until the end of September 2016 was at 0.7%, which was impacted by a 0.1% contraction in the first quarter of 2016 and low growth in the following quarters.
The fourth quarter results will show that the economy didn’t expand at all on an annualised basis from the previous quarter, according to the median of 15 economists’ estimates compiled by Bloomberg.
Others show signs of slow growth. “Statistical forecasts for the local GDP growth rate for the fourth quarter … show that a figure of 0.4% is expected,” Giacomo Bonavera, head of foreign exchange trading at Capilis Asset Managers, wrote in Finweek on Monday.
“An increase in activity in the finance, transport and communication, real estate and construction sectors was offset by a decline in the agriculture, mining and manufacturing industries,” he said.
He explained that the Business Confidence Index declined to 38 in the fourth quarter of 2016 from 42 in the previous period.
“Confidence dropped in motor and retail trade sectors and to a lesser extent in wholesale trade while confidence among manufacturers remained unchanged at depressed levels and it improved in the building sector,” he said. “The results point to subdued growth in the second half of the year.”
National Treasury said in its Budget in 2017 that they expected the country to grow by 1.3% in 2017 and then by 2% in 2018. They also see inflation decreasing to 6.4% in 2017 and to 5.7% in 2018.
What next after GDP - the repo rate...
The Reserve Bank will announce its next repo rate decision on March 30, but economists believe while the economy didn’t grow much in the last quarter of 2016, the start of 2017 showed better results.
Annual consumer price inflation was 6.6% in January 2017, down from 6.8% in December 2016. The consumer price index increased by 0.6% month-on-month (m/m) in January 2017.
The rand has gained 5.2% to the dollar in 2017, the best start to a year since 2012.
“I’m sure the Reserve Bank would like to cut rates because it’s good for the economy,” Christie Viljoen, an economist at KPMG in Cape Town, told Bloomberg. “Their primary mandate is inflation and they need to see that sustainably in the target before they can cut.”
Forward-rate agreements starting in nine months, used to speculate on borrowing costs, show traders have started pricing in cuts in the repurchase rate. Breakeven rates, a measure of inflation expectations, have fallen 18 basis points in 2017 and were below the top end of the central bank’s 3% to 6% target band at least three times this year.
The Reserve Bank has said it may be close to the end of the tightening cycle that saw the benchmark rate raised 200 basis points to 7% in the two years through March 2016.
The only thing that could prevent a rates reduction is any dramatic politics events, which is not unrealistic considering tension in the African National Congress ahead of their conference in December.
Politics must remain “as stable as possible,” Thabi Leoka, an economist at Argon Asset Management in Johannesburg, said by phone. “Last year, a lot of rand weakness was due to political noise.”
