04 December 2009
	More signs of a pulse

South Africans have probably come to accept that, just as we felt the negative effects of the global economic crisis later than elsewhere, so too must we wait to share in the recovery. But a recent spate of positive domestic data shows that the SA economy has at last begun to take the first steps on what is expected to be a long, steep road to recovery. Real GDP posted a positive gain of 0,9% in the third quarter - though, as we pointed out last week, this was in itself evidence more of the beginning of a recovery from the recession, rather than an exit from it. Perhaps more important than statistics at this point is sentiment, though the two are obviously related. Business confidence remains low and is still fragile, but the small uptick in the fourth quarter is encouraging and points at least to the end of a three-year decline. In addition, consumer price inflation (CPI) in October dipped inside the 3%-6% target band for the first time since May 2007, while producer price inflation (PPI) remained deep in negative territory. But economists warn that the reversal of base effects from high food and fuel prices is likely to see inflation jump above 6% again, before subsiding in the first quarter of next year. Consumer prices will be at risk from any reversal of rand strength. Electricity price rises remain the largest upside risk to the inflation outlook. Steep tariff increases for Eskom would exert significant upward pressure on inflation. On balance, this week's confirmation of the fall in inflation and the rise in business confidence take us a little further than the rise in GDP. Together they suggest that overall economic activity will gain momentum, though the Reserve Bank's window for further monetary easing has largely closed. This means business can look forward to at least another year of low and stable interest rates, if not outright cuts.