Guiding consumers since 2009

Time to tighten the belt

By Staff Writer


From Fin24
November 27, 2007
By Phumza Macanda

Pretoria - South Africa's economic growth quickened in the third quarter, showing that the economy is shrugging off higher interest rates and keeping the door open for another rate increase next week.

Statistics South Africa said on Tuesday third quarter growth stood at an annualised 4.7%, above market expectations of 4.2%, while the unadjusted year-on-year figure also beat forecasts at 5.1%.

"From a broad perspective, it's a very strong number. It's a lot stronger than the market anticipated," ETM economist Russell Lamberti said. "It certainly bodes (ill) for further interest rates hikes down the line."

South Africa's central bank has raised its repo rate by 150 basis points to 10.5% since June to tame accelerating inflation and strong consumer spending, bringing to 350 basis points the hikes since June last year.

Resilient borrowers

The tighter monetary policy was expected to curb demand, but construction and higher corporate borrowing in the finance sector - the biggest contributor to GDP - are proving resilient.Manufacturing, however, was hurt by a stronger currency and strikes.

"Although other sectors are showing a slowdown, faster growth in the finance sector is pulling everything up and the main reason for the faster growth is corporate investment," said Kedibone Mokone, Stats SA manager for GDP.

The finance sector grew by 12.1% compared to the previous quarter and construction quickened by 14.7%. Manufacturing contracted by 2.5%, its worst performance in four years.

Stats SA also revised its economic growth for the 2006 calendar year upwards to 5.4% - a near three decade record - from 5.0%. Economic growth was last at 5.4% in 1981.

Another rate increase?

Faster growth in Africa's biggest economy over the past three years has been driven mainly by bullish domestic demand, but this has added to inflationary pressures.

Analysts said with the economy showing few signs of a strain from tighter monetary policy, the central bank will have fewer hesitations about raising rates again when its policy committee meets on December 5-6.

"Overall, GDP remains firm, and with price stability still the main priority, the way is open for the SARB to tighten interest rates a further 50 basis points next week," said Razia Khan, Regional Head of Research, Africa, at Standard Chartered. "The encouraging news is that despite the interest rate tightening cycle, growth has been largely resilient," she said.

The targeted CPIX inflation pushed further outside the central bank's 3% to 6% band to 6.7% year-on-year in September and is forecast to go even higher in data out on Wednesday.

The central bank has vowed to do all it can to bring consumer inflation back within the band. "The bottom line for us is that these figures (growth) strengthen the case for further tightening next week," said Adenaan Hardien, chief economist at Cadiz African Harvest.

Recent Articles

Featured Work from home, have meetings at restaurants – the new normal?

With companies moving from static office spaces to working remotely, meetings have predominantly been held online. However, some companies have turned their attention to meeting at variable locations, such as restaurants or hotel conference rooms.

Is a home loan a great savings tool?

There are many saving and investment options available to consumers. What you decide to use is dependent on your circumstances. But should you make your home loan your choice of a savings vehicle and how does that exactly work?

Everything you should know about tax auto assessment

In 2019, the South African Revenue Service (SARS) launched a system, which was dubbed an “auto assessment”, to assist taxpayers with their annual tax returns. But what does this system entail, and how will it impact you?

What does it mean to be a registered Financial Services Provider?

You may have noticed that financial institutions state that they’re registered Financial Services Providers (FSP). But what does this actually mean, and how does this benefit you as a consumer?

Deals

Earn up to 50% of your tax return submission fee back in eBucks

Price: Available on request
When: Daily
Where: Nationwide

Be part of the Belly Of The Beast Weekday Spring Special Lunch

Price: R350
When: From 23 September 2020
Where: Cape Town

Tony’s Roma Breakfast Special

Price: R39
When: Daily
Where: Cape Town


Latest Guide

Guide to debt rehabilitation solutions