South African consumers have to prepare themselves for a choppy ride this year as a weak rands labour strifes higher inflation and rising interest rates are dimming the lights on 2014.
This is according to the latest BankservAfrica economic transaction index (BETI), which was released on Wednesday. The index forecast that South African economic growth would slow to 2.8% this year, with the possibility it could even be adjusted downwards.
“An element of uncertainty definitely continues to influence economic decisions,” Economists.co.za chief economist Mike Schüssler said, adding that “the slow growth trend seems fairly entrenched in the South African economy”.
BankservAfrica said the decline in the rand, which had weakened by 9% against the dollar this year, was expected to lead to an increase in the prices of many everyday goods. Petrol prices this year were estimated to have increased by 13.8% compared with 2013. The price of maize, SA’s staple food, reached R3000 a ton for the first time in January due to poor harvest expectations and the weaker rand.
Recent strike action in the platinum, manufacturing and municipal sectors have meant that the economy is under significant economic pressure. Besides unexpected strike action, Mr Schüssler identified other underlining problems.
“The lack of capacity (as in the case of electricity) will most certainly also have an impact on South African export earnings and, therefore, on transport and mining company earnings, as clearly illustrated by the Richards Bay Coal Terminal stoppage.”
BankservAfrica regulated products CEO Brad Gillis said the Reserve Bank had to focus on combating inflation. The bank recently hiked rates by 50 basis points to 5.5% to curb rising inflation, which it believed would breach the upper end of its 3%-6% target band this year due to the weaker rand.
Gillis believed interest rates were likely to rise further this year.
“New car sales already indicated a decline of nearly 7%, while the PMI (purchasing managers index) was also below 50 in January.”