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South Africa shows a bright economic outlook ahead and is expected to achieve an economic growth rate of 3.5 percent in 2004, central bank deputy governor said on Thursday.
Ian Plenderleith, Deputy Governor for South African Reserve Bank, said in an exclusive interview with Xinhua in Pretoria: "We as the central bank manage to control inflation with a range from 3 percent to 6 percent this year."
"The economy is performing encouragingly and I am optimistic about where the economy is proceeding and the prospect for the future," he added.
He said that South Africa's GDP growth rate would be 2.2 percent in 2003 while the inflation rate would stand at 3.4 percent.
In South African inflation has declined sharply, with the consumer price index rate currently within the target band and generally expected to remain below the 6 percent level for the next two years at least.
The deputy governor ascribed the success to the disciplined budget and tightening monetary policy in the past two years. "We have brought down interest rate substantially by 550 points in 2003. As a result inflation pressure also eased greatly."
"We have come through challenges and our economy is now back on track to continue to grow and expand," he said, "the inflation is stable and the economy is recovering."
Other economic sectors are also presenting a sunny outlook in South Africa, the largest gold producer in the world, with spot gold touching a fresh 15-year high of US$426.13 an ounce this week.
And its currency rand has gained about 50 percent since the end of 2001, standing on the second place in a comparison of more than 100 of the world's most-traded currencies from the developed and developing world.
Economists are predicting that this election year will be a stable one, with the rand/dollar exchange rate hovering between 6 rand and 8 rand, and the interest rate remaining steady.
Standard Bank economist Monica Ambrosi said that the rand would end the year on an annual average of 6.60 rand to US$1. There could be a further interest rate cut of 50 basis points in February, bringing the prime interest rate to 11 percent.
"Beyond that I don't think that interest rates will move up or down. I believe they'll end the year flat at 11 percent," she said.
The key determinant to the interest rates being increased would be the rand's performance.
"If there is a decline in the rand then the interest rates might have to be raised. At the moment there is very little scope for these events to be worse than we expect. Nothing dramatic will happen that will warrant a tightening in monetary policy," she said.
Economist Jenny Terwin from the Stellenbosch University's Bureau for Economic Research (BER) said although the local currency had affected growth, consumer and investment demands remained strong. "These should contribute to a substantial further extension of the business cycling upswing."
However, Econometrix economist Michael Keenan ruled out a further interest rate cut this year.
"We're expecting some weakness to creep in. But it's still early days. We've had a lot of interest rate cuts already and the cautious tone of (Reserve Bank governor) Tito Mboweni in December suggests that there will be no more cuts.
"We've come along way already but we are not out of the woods yet. And we don't want the monetary easing to put undue inflationary pressures on us in 18 months."
Ambrosi said the elections, widely expected to be held in April, would have no real impact on the markets or the rand.
Keenan agreed, saying expectations were that the elections would take place without much disturbance.
"Things will stay relatively stable. The only real political threat is Zimbabwe, but even that has sort of fallen into the background," he said.
Despite the encouraging economic performance, Plenderleith warned: "We could face shocks and waves. Of course we could have external events affecting us and anybody."
He feared that the exchange rate would rise because the dollar continues to remain weak. "We can react on monetary stance."
South Africa and its southern African neighbors have experienced severe drought since 2003, but the deputy governor ruled out big negative impact on the economy.
Keenan warned that while a stable year was currently being forecast, higher than inflation wage demands and credit hungry South Africans could hurt the economy.
He added that unreasonable wage demands could also hamper the economy.
"Wage demands are still coming in higher than the prevailing inflation rates ... everybody has to come on board and adopt this inflation targeting approach," he said.
Colin McClelland, Director of the South African Petroleum Industry Association, said that these forecasts suggest that the prices of petrol, diesel and paraffin would go up marginally over the year.
He said while it was difficult to predict what the oil prices would do, in terms of the rands expected performance it should be a stable year.
Some economists said the outlook for economic growth has also been affected by the strong rand and its implications for export and import competition. The rand's strengthening during last year may have been overdone and this was shown in the poor performance of the domestic manufacturing sector and an increasing deficit on the current account of the balance of payments.
However, local business owners remain optimistic about the economy and profitability despite the rand's strength.
On balance, 52 percent of South African business owners expect the profitability of their businesses to improve. This compares with a global average of 42 percent and a South African average for last year of 47 percent.
(Xinhua News Agency January 9, 2004)
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