Morgan Stanley: Goldilocks Would Be Pleased By South Africa's Economy


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South Africa appears to be in the Goldilocks Zone, according to Morgan Stanley analysts Michael Kefe and Andrea Masia.The term is derived from the fairy tale Goldilocks and the Three Bears, in which Goldilocks chooses from sets of three items, ignoring the extremes and picking the one in the middle, or the one that is “just right”.

Kafe and Masia argue that South Africa is in the Goldilocks Zone based on 4 key data points:

  1. Higher growth – The economy is forecast to grow 3 per cent in 2012.
  2. Lower inflation – Despite higher oil prices CPI is expected to be 6 per cent, down from earlier forecasts of 6.2 per cent. Inflation is already believed to have peaked.
  3. Narrower twin deficits (current account balance and government budget balance) – Current account deficit is expected to narrow to 4.2 per cent in 2012, down from previous projections of 4.5 per cent. China has become South Africa’s biggest trading partner and better growth prospects in Asia are likely to have a positive impact on South Africa’s external accounts.
  4. Sustained low interest rates

Kafe and Andrea Masia have raised their 2012 GDP forecast for South Africa to 3 per cent, up from 2.5 per cent. This revision is driven by their belief in the South African consumer and because of their improved view on the global economy.

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