Old Mutual Predicts on Economic Growth This Year

January 27 - The Chief Economist at Old Mutual Investment Group SA (OMIGSA), Riaan Le Roux said that the rand is likely to 'set the pace' for the rest of the economy in the year ahead.

He expected improved economic growth of around 3.5%, with gradual rand weakening.

"As we know, the currency is probably the most unforecastable factor in our economy," he said, speaking at the Old Mutual's quarterly briefing in Johannesburg this week.

"In 2010, the rand was the third strongest major currency in the world. This kept our inflation in check, allowed interest rates to fall to 35-year lows and consequently helped boost consumer incomers after a tough 2008-2009."

He said that it was his belief that the rand was "overvalued at its current levels."

Less investors would be attracted to the rand this year than they were last year, he said.

"For example, rising inflation in certain emerging markets is causing them to raise their interest rates, making SA's interest rates less attractive, especially since we expect our rates to remain largely unchanged for the year," he said.

As as result, investment conditions were less favourable for emerging markets this year than they were last year.

Should the rand weaken drastically, said Le Roux, it could threaten the economy as it could trigger inflation.

"While the speed and extent of any rand weakening is hard to predict, some softening would be welcome as a spur to economic growth," he said.