Mixed signals from economic data

Local data published this week told an ambiguous story on the state of the economy, resulting in expectations for the year ranging from subdued to optimistic.

Chris Hart, an economist at Investment Solutions, said at an economic presentation this week economic growth in SA might exceed expectations this year.

He said after the growth story disappointed somewhat last year (when the economy grew by 2.8%) the cycles of most economic indicators have now passed turning point.

"The turning points were unsynchronised, but it seems they are now all coming together and synchronising and mutually reinforcing each other," Hart said.

"It might well be that economic growth could be higher than expected."

Treasury and the Reserve Bank both expect economic growth of 3.4% for the year.

Economic data published this week includes credit extension, which grew slower, the purchasing managers index (PMI), which increased, vehicle sales, which showed a substantial rise, and the business confidence index (BCI) of the SA Chamber of Commerce and Industry (Sacci), which weakened.

Christie Viljoen, an economist at NKC Independent Economists, says the economic data that weakened are mostly of a short-term nature.

Viljoen expects economic growth of 3.6% for the year.

Roelof Botha, an economic advisor for PWC, is even more optimistic, expecting growth of between 4% and 5% for the year due to a convergence of cyclical and structural factors.

Botha said the biggest short-term risks for growth are energy costs and skills shortages.

While some analysts warn against the impact of the higher oil price on growth prospects, Botha said an oil price of $100/barrel will not prevent the economy from growing by more than 4%.

But this is still a far cry from the 7% growth finance minister Pravin Gordhan says is necessary to have a significant impact on poverty and unemployment.

On the more subdued side, Nedbank's group economic unit said in a report this week growth should remain below potential, forecasting a mere 3.2% expansion in the gross domestic product due to uncertainties in SA and abroad.

Nedbank said whereas consumer spending has recovered, much of it was driven by a sharp rebound in spending of durable goods off a very low base.

Sacci, whose BCI weakened for a second consecutive month, also warned against the risks of uncertainty and price instability.

But despite the 1 index point contraction in the index, the chamber said it still believes the BCI has not lost upward momentum and will continue its path to recovery.

Inflation expectations also vary, but an interest rate hike later this year seems increasingly possible.

Nedbank said while a rate hike might be appropriate in the second half of the year given the exogenous risks to local inflation, it would do little to contain inflation and the risks curbing the local economic recovery.

Botha said inflation was unlikely to suddenly spike and expected inflation to reach a maximum point of 5% in the second half of the year.

"If interest rates are hiked (this year), it will be marginal," he said.