South Africa’s gross domestic product (GDP) growth accelerated towards 4% quarter-on-quarter in the final three months of 2010, after the economy expanded by 2,6% in the third quarter, the Bureau for Economic Research (BER) said on Thursday.

The fourth-quarter growth would result in the economy expanding by 2,7% for 2010, following the contraction of 1,7% recorded in 2009.

Statistics South Africa is due to release the official fourth-quarter growth figures on Tuesday, ahead of Finance Minister Pravin Gordhan’s Budget speech a day later.

However, the BER pointed out that the growth recovery to date has not been broad based, with robust consumer spending providing most of the impetus, while fixed investment remained poor, albeit slowly gaining traction.

The BER had made an upward revision to the South African GDP growth forecast for 2011 by 0,4 percentage points to 3,8%, mainly resulting from a more optimistic projection of household consumption expenditure, at 4,3%, compared with the 3,7% that was forecast in October 2010.

The result was that gross domestic expenditure, the broadest measure of domestic spending that includes fixed investment, government expenditure and inventory investment, accelerated to a growth of 4,8% during 2011, from a projected 4,3% in 2010.

GDP growth was expected to remain just below 4% at 3,9% for 2012, a marginal upward adjustment from the 3,7% expected previously.

Consumer spending growth was set for a further marginal acceleration in 2012, while private business fixed investment should pick up at a faster pace. The BER noted that the improved GDP performance should be accompanied by employment growth, but with output growth projected to remain below 4%, only modest employment gains were expected.

After 322 000 formal nonagricultural sector jobs were lost in 2009/10, the BER forecast that only 267 000 formal sector jobs would be created in 2011/12. This meant that, even at the end of 2012, the level of employment would still be below the peak reached during 2008.

Nevertheless, the projected employment gains - along with sustained strong wage increases and the further roll-out of government’s social grant programme - were expected to be the key drivers of real disposable income and consumer spending.

Meanwhile, the BER reported that consumer price inflation (CPI) remained well within the South African Reserve Bank’s (SARB’s) 3% to 6% target band in 2010, although the general price level was slowly rising. After reaching a low of 3,2% year-on-year in September 2010, CPI accelerated to 3,7% during January.

Going forward, the local inflation environment was expected to be less benign, as the low base in 2010 fed into local price pressures. The adverse consequences of the higher oil price have already been felt, with the 11,4% or 92c/l increase in the local petrol since September 2010, with another hefty rise of around 30c/l on the cards for March.

Food price pressure was set to build through 2011. The BER pointed out that the higher-than-expected food prices could see the CPI breach the 6% upper inflation target limit before the end of 2011.

Consumer inflation is expected to remain well contained during the first half of 2011 at a projected average of 4%, against 3,5% during the fourth quarter of 2010. Price pressures were set to build in the second half with CPI expected to end in 2011 at just below the 6% mark, giving a CPI average for 2011 of 4,7%.

Looking towards 2012, higher economy wide capacity use rates, multiple years of double-digit electricity price rises and continued projected robust wage increases may result in a further acceleration in price pressures, as second-round effects take hold. CPI was forecast to average 5,7% during 2012.

While the SARB was likely to hold off on raising the interest rate for as long as possible, the BER forecast a first 50 basis points rate hike in November, to be followed by another 100 basis points worth of rate hikes during the first quarter of 2012. These increases would take the repo rate to 7% and the prime lending rate to 10,5%.

Meanwhile, the rand exchange rate significantly outperformed its peer currencies in December, but has subsequently weakened sharply so far in 2011. Looking forward, the BER did not expect the rand to continue to weaken at the same pace as was seen since the start of the year.

“A number of factors, including low-developed country interest rates and high commodity prices, should continue to support the local unit. The rand is expected to end 2011 at around current levels of R7,30/$.”

Global economic prospects have also improved, despite sovereign debt concerns and rising fears about a build-up of emerging market inflationary pressures.

In its January 2011 ‘World Economic Outlook’ update, the International Monetary Fund raised the 2011 World Growth forecast by 0,2 percentage points to 4,4%, mainly resulting from a more favourable US growth outlook after the extension of tax cuts that would have expired at the end of 2010.