Although Finance Minister Trevor Manuel was adamant on Tuesday that South Africa would escape the worst effects of the global financial crisis, he acknowledged that the country would fail to achieve the growth aspirations it had set for itself under the Accelerated and Shared Growth Initiative of South Africa, or Asgisa.
Speaking in Parliament, Manuel framed his address under the theme “Liduduma lidlule! The thunder will pass!”, and used the platform to reassert that South Africa’s prudent financial policies of the past 14 years had provided it with a degree of protection against the financial contagion currently gripping world economies.
In fact, the Medium Term Budget Policy Statement (MTBPS) 2008 still forecast positive gross domestic product (GDP) growth of 3,7% for the current year, but indicated a deceleration to only 3% in 2009. The 3,7% was a downward revision from the 4% forecast in February, which itself was down from the 5,1% expectation of 2007.
It also forecast growth of 4% for 2010, which was a full two per cent short of the Asgisa target of 6% a year as from 2010. Government now expected growth to recover to just 4,3% in 2011.
The outlook was, thus, far less buoyant than South Africa’s recent past, during which a growth rate of 5% a year that had been achieved since 2003.
“Growth will be slower in 2008 and 2009,” Manuel stated, adding that it would be held back by domestic supply constraints and the international economic deterioration.
“The world is experiencing a financial market crisis on a scale not seen since the 1930s,” the MTBPS asserted, adding, however, that South Africa’s longer-term economic expansion rested on sound economic policies, healthy public finances and resilient financial institutions, pursued steadily over the past 14 years.
INVESTMENT RISES TO 22% of GDP
Manuel also asserted that South Africa’s R600-billion infrastructure investment expansion would continue, and noted that investment as a percentage of GDP had risen from 15% in 2002 to 22% in the first half of 2008.
Manuel said that, alongside the strengthening of initiatives focused on job creation and poverty reduction, government policy would remains focused on long-term growth founded on a sustainable fiscal and financial framework.
This statement appeared to be mostly in line with a statement released at the conclusion of a two-day Alliance economic-policy summit, which emphasised “continuity and change”.
However, the Alliance, which is made up of the ruling African National Congress, the South African Communist Party (SACP and the Congress of South African Trade Unions (Cosatu), also hinted to a far more assertive fiscal policy and a possible tweaking of monetary policy to embrace multiple mandates rather than simply inflation targeting.
In fact, the declaration argued for fiscal and monetary policy to be “calibrated” to South Africa’s industrial policy, which would focus on increasing value-added manufacturing and resources beneficiation, covering minerals, agricultural commodities and marine resources.
The MTBPS argued that higher economic growth would depend on further increasing investment in human and physical infrastructure, boosting domestic savings and improving international competitiveness.
Making growth more labour absorbing requires further attention to microeconomic policies, enhancing the effectiveness of competition policy, removing impediments to job creation in the labour market and increasing public spending on infrastructure and labour-intensive services,” the statement added.
Again, this was mostly in line with Alliance aspirations, which also emphasised microeconomic reform and capacity building. However, the reference to the removal of labour-market impediments would, no doubt, be of concern to both the SACP and Cosatu.
There was a strong sense of realism in the MTBPS, with the statement acknowledging that the performance of the global economy would be a key determinant of South Africa’s economic performance.
“Growth in the seven most advanced economies is now projected to be close to zero, with some of these countries dipping into recession. Similarly, measures to curb rising inflation in India and China, as well as slowdowns in their major export markets, mean that growth in these two large trading economies is likely to cool down. Commodity prices have already fallen sharply on expectations of lower Asian demand,” the statement read.
Speaking in Parliament, Manuel framed his address under the theme “Liduduma lidlule! The thunder will pass!”, and used the platform to reassert that South Africa’s prudent financial policies of the past 14 years had provided it with a degree of protection against the financial contagion currently gripping world economies.
In fact, the Medium Term Budget Policy Statement (MTBPS) 2008 still forecast positive gross domestic product (GDP) growth of 3,7% for the current year, but indicated a deceleration to only 3% in 2009. The 3,7% was a downward revision from the 4% forecast in February, which itself was down from the 5,1% expectation of 2007.
It also forecast growth of 4% for 2010, which was a full two per cent short of the Asgisa target of 6% a year as from 2010. Government now expected growth to recover to just 4,3% in 2011.
The outlook was, thus, far less buoyant than South Africa’s recent past, during which a growth rate of 5% a year that had been achieved since 2003.
“Growth will be slower in 2008 and 2009,” Manuel stated, adding that it would be held back by domestic supply constraints and the international economic deterioration.
“The world is experiencing a financial market crisis on a scale not seen since the 1930s,” the MTBPS asserted, adding, however, that South Africa’s longer-term economic expansion rested on sound economic policies, healthy public finances and resilient financial institutions, pursued steadily over the past 14 years.
INVESTMENT RISES TO 22% of GDP
Manuel also asserted that South Africa’s R600-billion infrastructure investment expansion would continue, and noted that investment as a percentage of GDP had risen from 15% in 2002 to 22% in the first half of 2008.
Manuel said that, alongside the strengthening of initiatives focused on job creation and poverty reduction, government policy would remains focused on long-term growth founded on a sustainable fiscal and financial framework.
This statement appeared to be mostly in line with a statement released at the conclusion of a two-day Alliance economic-policy summit, which emphasised “continuity and change”.
However, the Alliance, which is made up of the ruling African National Congress, the South African Communist Party (SACP and the Congress of South African Trade Unions (Cosatu), also hinted to a far more assertive fiscal policy and a possible tweaking of monetary policy to embrace multiple mandates rather than simply inflation targeting.
In fact, the declaration argued for fiscal and monetary policy to be “calibrated” to South Africa’s industrial policy, which would focus on increasing value-added manufacturing and resources beneficiation, covering minerals, agricultural commodities and marine resources.
The MTBPS argued that higher economic growth would depend on further increasing investment in human and physical infrastructure, boosting domestic savings and improving international competitiveness.
Making growth more labour absorbing requires further attention to microeconomic policies, enhancing the effectiveness of competition policy, removing impediments to job creation in the labour market and increasing public spending on infrastructure and labour-intensive services,” the statement added.
Again, this was mostly in line with Alliance aspirations, which also emphasised microeconomic reform and capacity building. However, the reference to the removal of labour-market impediments would, no doubt, be of concern to both the SACP and Cosatu.
There was a strong sense of realism in the MTBPS, with the statement acknowledging that the performance of the global economy would be a key determinant of South Africa’s economic performance.
“Growth in the seven most advanced economies is now projected to be close to zero, with some of these countries dipping into recession. Similarly, measures to curb rising inflation in India and China, as well as slowdowns in their major export markets, mean that growth in these two large trading economies is likely to cool down. Commodity prices have already fallen sharply on expectations of lower Asian demand,” the statement read.
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