The halcyon days of the decade-long growth surge – the longest since World War 2 – are over and South Africans, for whom low interest and high growth rates had become the norm, are now facing real prospects of an economic slowdown, albeit a mild one.

Jean Francois Mercier, Citigroup’s Johannesburg-based economist, forecasts that South Africa’s economic growth will slow to 4% in 2008, driven by a marked slowdown in consumer spending because of higher interest rates and falling housing affordability. Export growth will be cramped by slowing global growth and an appreciation of the rand last year.

While this will hamper job creation, it will allow a return of inflation to within the 3% to 6% target range by late 2008, making space for the Reserve Bank to start cutting interest rates towards the end of the year.

The main cause for the expected economic slowdown is that the high consumer spending of the period 2003 to 2007 is finally slowing because of higher interest rates and new National Credit Act which have both made it a lot harder for consumers to borrow money.

Official data show that new passenger car sales in December were down 19% compared with a year ago and residential building plans passed have been slowing for the past two years.

First National Bank chief economist Cees Bruggemans predicts that residential building investment will turn negative in 2008 and this will, because of the associated slow down in appliances and other durable goods, help slow credit growth even further. This will drag inflation down and help curb future increases in interest rates.

Despite some slowdown, there is no real threat of recession, as in the developed economies of the West, and, as Bruggemans says, ‘only “own goals” could jeopardise our 2008 prospects, for which reason politics will be important this year’.

One such own goal could be scored by a radical shift in the market friendly economic policies that the ANC have adopted since coming into power in 1994.

Analysts have long debated the possible impact of the paralysing and acrimonious leadership battle in the ANC in the latter part of 2007, the effects of which are being felt already, will have on economic policy.

If there are changes – and Jacob Zuma has said there will not be although his coterie of supporters are baying for them – these will likely only materialise from 2010.

If there are shifts in economic policy, these are more likely to take the form of a redirection of resources to the poor, a key concern of Zuma’s core leftist constituency, than to see a reversal of decisions surrounding the rejection of nationalisation or a radical shift in black economic empowerment programmes.

As Mercier points out, ‘for most of the past few years, growing monetary and fiscal policy continuity helped South Africa establish a better track record and, in turn, contributed to a gradual decline in the political risk premium embedded in South African financial assets.’

But, he says, this policy continuity coincided with the long tenure in office of policymakers in charge of the key levers of policy implementation.

Given the shift in the leadership of the ANC however, there will be a change in policy makers although this does not necessarily guarantee a change in policy. If Zuma is able to banish the legal demons pursuing him and emerge unscathed from his looming corruption trial, he will be able to appoint his own cabinet ministers, as well as a new Reserve Bank governor when Tito Mboweni’s term expires in 2009.

Mercier, Bruggemans and other economists and analysts do not expect radical changes in economic policy, even after the 2009 elections, in which the ANC is the overwhelming favourite.

Mercier says decisions taken in Polokwane last December point to a continued policy strategy of private sector-driven growth with the state ‘spearheading public investment, defining an industrial policy and widening the social safety net for the poor’. This is essentially the approach the government has already followed over the past few years.

Looking forward this year, the South African economy is likely to remain reliant on buoyant commodity prices, which are determined by what is happening in the global economy.

Infrastructure investment, especially by public corporations like power utility Eskom and freight company Transnet, and builders of non-residential property will also boost growth this year.

Bruggemans says that manufacturing is unlikely to make much of a contribution to economic growth, given strong low-cost global competition and the strong rand. Manufacturers will also be hampered by incessant power outages following decades of underinvestment by Eskom.

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