Abstract
This 2007 Article IV Consultation highlights that real GDP in South Africa grew by 5 percent in 2006 and continued to grow vigorously in early 2007. Growth was driven by strong domestic demand, with private consumption and investment spending supported by continuing robust consumer and business sentiment and low interest rates until late 2006. Asset prices continued to rise rapidly in 2006 and early 2007. Executive Directors have considered that the economic outlook for South Africa remains broadly positive.
July 25, 2007
1. This statement provides information that has become available since the staff report was prepared. The thrust of the staff appraisal remains unchanged.
2. Recent indicators, such as manufacturing output and the purchasing managers’ index, suggest that economic activity has remained robust, while showing some signs of moderation. Moreover, employment in the formal non-agricultural business sector rose slightly during the first quarter of 2007 and, as of March, was up by 2¼ percent compared to June 2006, the earliest data point available according to a revised methodology. Inflation rose to 6.4 percent (CPIX, year-on-year) in May, mainly reflecting higher food and fuel prices. The rand has lately strengthened somewhat against major currencies.
3. Market confidence remains high, as South Africa’s sovereign spreads remain low and stock prices are hovering around historic heights. By mid-July, net nonresident purchases of stocks and bonds have reached about 3 percent of GDP.
4. In a well-publicized event, the South African Reserve Bank (SARB) made its core forecasting model public in June. Staff welcomes this additional step in shedding light on an important component of the Bank’s already quite transparent inflation targeting framework.