Yesterday, Statistics South Africa released the figures for the countries GDP (Gross Domestic Product) and the figures showed that the GDP rose by 4.7% during the third quarter of the year compared to the revised 4.4% of the previous quarter. This goes to show that the economy is growing but this could be bad news as economic growth tends to fuel inflation and if inflation continues to rise that will lead to an increase in interest rates.

There has been some concern over the accuracy of these figures as outlined by T-Sec economist, Mike Schussler, who said: “Wow, if that’s a true reflection of the economy I would be very surprised. This means 15% prime is not out of the question. I just don’t know where they got the figures, since manufacturing was negative, as was seasonally adjusted retail sales quarter on quarter.”

A decision on interest rates is going to be made next week (December 5 - 6) and all signs point to there being another rate hike. This would mean that the prime lending rate could rise to 15%. This is bad news for the consumer as it will result in higher costs for borrowing money and those already in debt will suffer the most.

The economies inflation figures are set to be released later on today and chances are that these figures will show a rise in inflation from the previous months, further fueling the chances of a rate hike next week.
A slightly positive economic commentator had this to say though: “Prime says nothing. What we need to look at is the real interest rate -> that is the difference between inflation and the prime rate - that means 15%-7% = 8% difference. That is huge. Just give the rates time to filter through to production and consumption - inflation won’t rise and will start to fall next year as the oil price comes down due to more refinery capacity. The money supply figures will also start to fall. The rates cannot rise much further and will not remain at these levels for long because the real economy is doing well and we will be able to afford more cheaper imported goods next year as we are able due to our current economic expansion, thanx to higher exports and prices of metals and commodities. 2008 won’t be a bad year bar some world credit crunch.”

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