29 October 2007
Reversed South African Economy
Posted at 10/29/2007 12:07:00 AM
Given the present high inflation, it is useful to rise the prime rate to induce the savings. Rand really appreciate so much.(At the middle of August R7.5 R/$, today 6.5R/$). This gives so much opportunities for people sepnding outside of South Africa, e.g. importing, oversea holidays.
Also the increased tax pressure, credit pressure, how many small entrepreneurs can survive. Even the big companies are suffering huge profit loss.
Government force of BEE, is this redistribution wealth between diffrence races really good for economy?
Inflation, shaking rand, Tax, Credit plus government regulation, they are enough to scare away investors.
The bad news seems coming early, the suddend decreased economic growth.
Finance minister Trevor Manuel could revise growth forecasts for this year lower in his mid-term budget speech next week as recent interest rate rises start to weigh on economic activity.
Manuel might also have to revisit his forecast of a budget surplus as increased government infrastructure spending overturns the impact of increased tax revenues, economic analysts predicted this week.
Growth slowed to an annualised 4.5 percent in the second quarter from 4.7 percent in the first quarter - and 5 percent for last year - held back mostly by poor manufacturing expansion and higher interest rates.
In his annual budget statement in February, Manuel said gross domestic product (GDP) was expected to expand by 4.8 percent this year, before rising to 5.1 percent next year and 5.4 percent in 2009.
Analysts said Manuel might now adjust his forecasts downwards in the face of rising rates.
The central bank has lifted the repo rate by 150 basis points since February, and by 350 basis points since June last year, in an attempt to arrest an inflation spiral that saw the main measure, consumer price index excluding mortgage costs (CPIX), breach its 3 percent to 6 percent target band for six months in a row.
"I think probably there is a possibility of downside revision on growth, because of the restrictive monetary policy that we have entered into," said Mandla Maleka, chief economist in the treasury department at power utility Eskom."He [Manuel] could revise growth, hence he could potentially also revise the budget deficit higher, because of higher interest rates."
In February Manuel said the budget would record its second consecutive surplus in 2007/08, which he saw at 0.6 percent of GDP, before falling back into a small deficit thereafter.
But possible government moves to help state enterprises with cash injections to fund huge infrastructure programmes might get in the way.
Sanlam economist Jac Laubscher said: "I cannot really see how, particularly Eskom, with its huge capital expenditure requirement … can go ahead without some injection of capital from the government.
"That will be one of the things to watch for, and if that was to be effected in the budget then … we might find that going into next year we will now see a projection for a bigger deficit, although not to the extent that it will become a problem."
Some economists want the government to change inflation targeting, with analysts suggesting the central bank has overdone monetary tightening in its bid to bring the CPIX gauge back into range at the expense of economic growth.
"I would like to see some comments about the inflation targeting mechanism [which] I think is overdue for an overhaul," said Brait economist Colen Garrow.
Resource: Manuel may reduce growth forecast
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