SA's economic growth and confidence has soared over the past year, thanks to the tailwinds of fast global growth, high commodity prices and a strong rand that has helped to suppress inflation and interest rates.
The upshot has been a consumer splurge that drove economic growth to 3,7% for the year - exceeding expectations. And there is no end in sight to the retail boom.
High disposable incomes, coupled with low inflation and stable interest rates, are expected to keep consumer spending robust throughout 2005, helping to counteract the drag of the strong rand on the production side of the economy.
Over the past year, economic records have toppled: headline inflation is at a 40-year low; GDP growth has remained positive for 25 consecutive quarters (the longest upswing since 1945); and the rand has recovered from its 2001 decline. The economy is even starting to create some jobs.
Government's expansionary fiscal stance has complemented the growth picture. During 2004, government announced a huge infrastructure spending programme that aims to pump R165bn into roads, ports and power generation over the next five years.
All these developments have reinforced the view that SA is on a structurally higher growth path that is capable of delivering average growth of about 4%, and possibly higher, for the next five years.
"We believe the growth potential in SA is still not sufficiently recognised and that most investors will still be surprised by SA's economic performance over the next decade," says Old Mutual economist Rian le Roux. "Growth of 4%-5% a year is not only possible but likely."
The 15 economists polled in the April 2005 Reuters Econometer expect real GDP growth to average 4,1% in 2005, before falling slightly to 3,79% in 2006 and then rising to 4,11% in 2007.
So far, the big winners have been consumer-orientated shares. Retailers such as Edcon, Massmart and the Foschini Group have all enjoyed higher earnings and greatly improved share prices.
"We expect the retail boom to continue through 2005, maybe not at growth rates of 20%, but certainly to be strong," says Foschini Group financial director Ron Stein.
The dark side of this rosy picture is the damage wrought by the strong rand on the export sector. Last year, gold production fell to its lowest level since 1931 and 153 000 jobs were lost in the mining sector in the six months to September.
"For the party to continue and even intensify, export industries will have to recover and job growth will have to become more entrenched," says Nedcor economist Dennis Dykes. "A less buoyant rand would help this process considerably and improve the long-term sustainability of the upswing."
The Reserve Bank's unexpected 50 basis point cut in the repo rate in April was an attempt to weaken the rand but, at the time of going to press, the currency was instead strengthening on the back of fresh dollar weakness.
Also concerning is the slowdown in global growth. Higher US interest rates and oil prices are expected to dampen growth this year, while the World Bank has warned of a decline in investor risk appetite.
Where does this leave SA? There is little chance of a major external crisis but 2005 could turn out to be an average rather than exceptional year.
With more than 4m unemployed, worsening inequality and poverty and the HIV/Aids pandemic inflicting serious damage on the country, SA needs to sustain growth rates well in excess of 4%. We can and must do better.
