Reuters SA Survey of Economists (November 2008)
The November edition of the Reuters South African Survey of Economists has just been published. (The Reuters Econometer is a measure of economic sentiment drawn from a monthly poll of forecasts by leading economists in South Africa and abroad and presented in the form an index). The weightings used in the index are: GDP growth – 25%; CPIX inflation – 20%; Producer Price Inflation – 5%; Prime Interest Rate – 20%; 10-year bond yield – 5%; Rand-Dollar Depreciation – 25%.
The November Reuters Econometer rose to a 19 month high of 260.65, a sixth straight monthly rise since reaching a 5½ year low in May.
Most of the economists polled expected the MPC to cut the repo rate by 50 bp to 11.5%, partly due to an improved inflation outlook. Expectations are for the repo rate to decline further to a mean of 9.21% at the end of next year and to 8.68% in 2010. This argument is substantiated by the expectations for a continued decline in targeted inflation over the course of 2009, with the rate seen returning to within the target band by Q1 2010.
Further bolstering the case for yet lower interest rates is the dramatic downgrades in expectations for short-term economic growth. GDP expansion is seen falling to an average of 1.7% in 2009, before recovering to 3.68% in 2010.
Two factors pushing in the opposite direction, however, are the current account deficit, which is seen growing further and remaining very large for the foreseeable future, and the rand/dollar exchange rate which is seen recovering from current weak levels in the near term but not to any great degree.
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Source: Sasfin, December 12, 2008.
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