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PREVIEW-S.Africa economy seen extending recovery

Published 02/19/2010, 06:31 AM
Updated 02/19/2010, 06:33 AM

WHAT: S.Africa's Q4 GDP, January consumer inflation, producer inflation, money supply and credit demand growth and trade balance.

WHEN: S.Africa Q4 GDP data on Tuesday, Feb. 23 at 0930 GMT

January CPI on Wednesday, Feb. 24 at 0930 GMT

January PPI on Thursday, Feb. 25 at 0930 GMT

January M3 money supply on Friday, Feb. 26 at 0600 GMT

January credit demand on Friday, Feb. 26 at 0600 GMT

January trade account on Friday, Feb. 26 at 1200 GMT REUTERS FORECAST

South Africa's economy continued its recovery from recession in the fourth quarter of last year, growing by 2.5 percent quarter-on-quarter and annualised, compared with the previous 0.9 percent growth, according to the median of a Reuters poll of 15 economists.

It was seen contracting 1.7 percent year-on-year and averaging a decline of 1.8 percent for 2009, in line with a Treasury forecast.

Consumer inflation was seen at 6.4 percent year-on-year in January (previous 6.3 percent), outside the central bank's 3 to 6 percent band for the second month in a row, and at 0.4 percent on a monthly basis.

Producer inflation, also for January, should quicken to 1.9 percent year-on-year from 0.7 percent and prices should rise 0.8 percent from December (previous 0.7 percent).

January credit demand was seen still in decline, falling 1.2 percent year-on-year compared with a drop of 0.76 percent in December, while M3 money supply growth should accelerate slightly to 1.9 percent year-on-year.

January's trade balance was seen at a 2.2 billion rand ($287.4 million) deficit versus December's 3.67 billion rand surplus.

FACTORS TO WATCH

Africa's biggest economy pulled out of its first recession in 17 years in the third quarter of last year and a pick up in the global economy should help sustain the revival in the manufacturing sector -- one of the hardest hit by the international downturn.

The manufacturing purchasing managers' index has been above 50 since November, signalling expansion, and output finally returned to growth with a 3.2 percent year-on-year rise in December.

This recovery in the economy's second biggest sector should help growth, but weak retail sales and declining credit demand growth point to indebted households under strain and a demand side of the economy that will likely remain a drag on growth.

The Treasury and central bank have warned that the economy's recovery may be slow and some analysts see space for another interest rate cut next month, particularly after some members of the Reserve Bank's rates committee argued for policy relief at their January meeting, and with Finance Minister Pravin Gordhan stressing they can focus more on growth and jobs in future.

Consumer inflation, though, is a concern having pushed through the top end of the bank's 3 to 6 percent target range again in December.

The breach, though, is likely to be temporary, given the acceleration was mostly due to base effects and the gauge could retreat back into the band in a couple of months.

Reserve Bank Governor Gill Marcus says the main threat to the outlook is expected big power price increases, due to be announced at 1000 GMT on Wednesday next week. The utility wants increases of 35 percent a year for the next three years.

MARKET IMPACT

Softer-than-expected GDP quarter-on-quarter will heighten speculation of an interest rate cut next month. Since the government is stressing the need for faster growth to help claw back the 900,000 jobs lost last year and revive consumer demand, the main driver of faster growth before the global downturn.

A downside surprise in inflation will also add to calls for another rate cut to add to the 5 percentage points in relief between December 2008 and August last year that countered previous rate increases.

Conversely, strong growth and inflation numbers may hit money market assets, sending bond yields higher. (Reporting by Gordon Bell; Editing by Jon Boyle)

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