South Africa emerges from recession, confidence rises

Johannesburg: Confidence in South Africa's economy edged up in Nov-ember after it emerged from recession in the third quarter, while inflation should settle inside a 3 to 6 per cent target band despite expected higher power costs.

Africa's biggest economy grew by an annualised 0.9 per cent in the quarter to end-September, ending nine months of recession that prompted sharp interest rates cuts to revive strained households and a manufacturing sector stung by a global downturn.

Manufacturing activity and consumer confidence is now on the rise, and the recovery is expected to gather pace next year.

The Reuters Econometer — an index of six weighted indicators — on Thursday inched higher to 235.89 in November's survey from October's 235.60.

The poll of 20 economists was conducted from Nov-ember 23 to December 1. It showed the economy will contract 1.85 per cent this year, roughly in line with the government's forecast and a slight improvement on the previous poll's 1.91 per cent fall.

Optimism

The hosting of the 2010 Soccer World Cup, with its expected 450,000 visiting fans, should help return it to growth of 2.37 per cent in 2010.

"I am a little bit more optimistic than others for growth next year, partly because of a low base," Colen Garrow, economist at financial services group Brait, said when predicting growth of more than 3 per cent.

Banks, which have cut down on lending to try minimise bad debt, may start loosening requirements as conditions improve, and while consumers remain under severe strain, pressure should ease as the effect of the 5 percentage points in interest rate cuts of the past year begin to filter through.

And the Fifa World Cup, there will be some impetus from that as well. The outlook for next year is looking more promising than a quarter or two ago," he said.

Most economists see the repo rate of 7 per cent as the bottom of the cycle, and the central bank's base lending rate should stay flat in 2010, helping the recovery.

The poll put the mean repo rate at 7.18 per cent at end-2010, pointing to a small minority forecasting an increase before the end of next year, but it should rise at least one percentage point by the end of 2011.

The outlook for inflation was also steady, with the targeted consumer gauge inside the current 3 to 6 per cent band on average for the next two years. It was seen averaging 5.83 and 5.91 per cent.