GDP forecast upped

In its economic prospects report for the third quarter of 2011, it said that the actual data already released for quarter two of 2011, especially for manufacturing production, suggest that second quarter GDP growth moderated from the 4.8% recorded in quarter one.

Better household consumption and fixed investment were the main reasons for the upward revision for 2011 as a whole.

"Stronger growth in the key domestic demand categories of GDP shows up in a sharper import gain, which in the GDP arithmetic subtracts from overall growth," senior economist at the BER Hugo Pienaar said on Tuesday, 26 July 2011.

Household spending is forecast to ease in 2012, while the fixed investment outlook has remained unchanged. The BER said the negative impact on overall GDP growth is now limited by imports growing by less than previously forecast. "Combined, the result is that GDP growth is set to ease slightly to 3.7% during 2012," said the Bureau.

In terms of Consumer Price Index (CPI), which was also slightly higher, it projected to average 5.2 and 5.9% respectively in 2011 and 2012. The previous forecast in April was that it would average 5% in 2011 and 5.8% in 2012.

According to the BER, the Reserve Bank's Monetary Policy Committee is likely to raise the repo rate at their November meeting by 50 basis points. It also projected another 100 basis points hike for the first quarter of 2012.

"While this is our baseline interest rate forecast we have to acknowledge that the significant global economic uncertainties combined with a fragile domestic recovery, may force the South African Reserve Bank to only start to think about the first rate increase during early 2012 or later," explained Pienaar.

Due to the rand remaining stronger than expected against the US dollar in quarter two and no signs of an imminent change in direction, the BER projects that the currency on average to remain below the R7 to the dollar until the end of 2011.