Economic Growth outlook 2013 and 2014

Posted On Wednesday, 21 November 2012 07:02 Published by eProp@News
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After the slowdown in economic growth to 2.5% this year, the Minister of Finance sees the local economy posting growth of 3% next year and 3.8% in 2014, says Luke Doig, Senior Economist, Credit Guarantee Insurance Corporation.

The Minister expects the budget deficit to narrow to 4.5% of Gross Domestic Product (GDP) in the 2013/14 fiscal year from an estimated 4.8% this tax year, implying that National Treasury has a lid on government spending. Producer prices rose far slower than expected in September, with a year-on-year rate of 4.2% from a rate of 5.1% in August. To an extent, this softened the blow from higher consumer prices, with the Consumer Price Index (CPI) rising 5.5% year-on-year in September from 5.0% the previous month. 

Unfortunately, this implies that the Monetary Policy Committee (MPC) is unlikely to cut rates further at its November 2012 meeting. That said, Governor Marcus appears to be aware of the challenges, both domestically and abroad, facing both consumers and businesses.

Formal company failures fell 28.5% year-on-year in September, bringing the year-to-date total to some 15.5% below the level recorded in the first nine months of last year. Year-to-date personal sequestrations are also 17.2% lower than in the first eight months of 2011. Since the new Companies Act and the business rescue provision were promulgated in May 2011, the Companies and Intellectual Property Commission (CIPC) reports that there have been 676 business rescue applications, which amount to roughly forty a month.

To date, CIPC’s figures indicate that approximately 55% of those companies entering business rescue are successful, with 38% being liquidated and the remaining 7% still under business rescue. So far this year there have been 2,092 liquidations and a rough calculation shows that some 200 businesses were saved by business rescue; this result is hugely significant as the process saves jobs and curtails payment defaults.

Further, there has been a sharp acceleration in the applications for business rescue over the past three months, indicating a greater awareness of the possibilities that the provision provides. The greatest negative aspect is where businesses apply for business rescue merely to avoid paying due debts.

Official payment default data indicates that debt judgments against businesses were just over 6% lower in the first eight months of 2012 at R708.8 million. However, the average monthly total has risen from R80 million in the first five months of the year to above R100 million in each of the last three months. Credit Guarantee’s overdue payment indicator has risen 4.2% in number in the first ten months of this year and 16.6% in value. Hence we would guard against unbridled optimism that some figures appear to be warranting.

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