S.Africa economic morale hits one-year low

By Phumza Macanda

JOHANNESBURG (Reuters) - Confidence in South Africa's economy fell to a one-year low in October as demand and manufacturing capacity were seen taking longer to recover, with high power costs further curbing growth and fuelling inflation.

South Africa is wallowing in its first recession since 1992 and spending and manufacturing have fallen sharply. Business confidence rose in the third quarter, although concerns about growth remain.

The Reuters Econometer on Thursday showed the index fell to 235.60 in October, its lowest since September last year, compared with 241.51 in the previous month.

The Econometer -- a measure of six weighted indicators for the medium-term outlook of the economy -- fell as most analysts downgraded their gross domestic product (GDP) forecasts.

GDP consensus for 2009 was for a fall of 1.91 percent before mild growth of 2.33 percent next year, and 3.5 percent in 2011, with 2010 and 2011 forecasts lower than previous expectations.

"We think the recovery won't be a smooth process because this is a deep and protracted recession and it will take time for confidence to return," said Salomi Odendaal, economist at Citadel, forecasting an anaemic 1.0 percent growth in 2010.

"Higher power costs will also have an impact on company profitability and consumer spending power as well, so the recovery will be gradual and weak."

State-owned electricity company Eskom wants to increase electricity prices by 45 percent over the next three years, a prospect the central bank has said is the main upside risk to the long-term inflation outlook.