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SA to revise down growth forecasts, says zero growth would be positive

National Treasury DG Lesetja Kganyago's warning that South Africa “would be doing very well” if it was able to record zero growth for the year. Cameraperson: Nicholas Boyd. Editing: Darlene Creamer. (26/5/2009)

26th May 2009

By: Terence Creamer
Creamer Media Editor


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The South African government would revise down its earlier growth forecast of 1,2% for 2009, but would only make this forecast known when it released its Medium Term Budget Policy Statement in either September or October. However, National Treasury DG Lesetja Kganyago warned on Tuesday that South Africa “would be doing very well” if it was able to record zero growth for the year.

National Treasury would not alter its stance on producing only two growth forecasts yearly, despite continually emphasising that economic circumstances had changed materially since February, when the initial growth forecast was made by the then Minister of Finance Trevor Manuel in his Budget address.

Speaking at an extraordinary media briefing in Pretoria, convened specifically to enable the National Treasury to comment on the fact that South Africa had descended into its first recession in 17 years, Kganyago said that government did not have the “luxury” of being able to adjust its forecasts on a daily basis.

He noted that, at the time of the Budget, the global economy was still expected to expand by 0,5%. That figure had been revised several times by the International Monetary Fund, which now expects a contraction of 1,3%.

“What we are going to continue to do as the Treasury, is to monitor all the high-frequency data that comes out and we will then take a view . . . on our economic forecast,” he said, adding that, come the Budget Policy Statement, “we will revise growth downwards”.

“And, if we do record zero per cent growth, we would be doing very well,” he added.

Recovery Hinges on Many Moving Parts
Government also had limited visibility of when the economy would recover, with much hinging on a recovery in the global economy and the responsiveness of the domestic economy to the fiscal and monetary measures taken.

The fortunes of mining and manufacturing – which declined by 9,3% and 22,1% respectively in the first quarter of 2009, and were key drivers of the worse-than-expected 6,4% contraction recorded for the period – were inextricably tied to those of the international markets.

“Those sectors that recorded growth, are those which depend on domestic economic activity, rather than on foreign demand,” Kganyago explained, adding that there was growing consensus that a recovery in such demand could begin showing through in the second half of 2009, or during the first half of 2010.

The sensitivity of the South African economy – which prior to the fourth quarter of 2008, had experienced 40 consecutive quarters of growth – to government’s fiscal stimulus interventions and the central bank’s monetary easing, would be the other key determinant of the pace of South Africa’s economic recovery.

Kganyago argued that South Africa had dedicated significant fiscal resources to stimulus initiatives, pointing to a recent International Monetary Fund study of G20 countries, which found that South Africa’s so-called discretionary stimulus expenditure amounted to 1,8% of gross domestic product, before the inclusion of the expenditure of the large State-owned enterprises. When these amounts were included the figure rose to 4,5%.

Further, the South African Reserve Bank had dropped interest rates by 350 basis points since December, which should begin affecting domestic demand in 12 to 24 months.

Revenue Impact
The other imponderable was what the slowdown would mean for revenue collection, which had expended strongly under the stewardship of Pravin Gordhan, who was named by President Jacob Zuma as South Africa’s new Minister of Finance on May 10.

“We are only seven weeks into the new fiscal year. Generally April is not such a good revenue month, May is modest . . . [but] what is going to be crucial here is to see what happens [to the deficit] once we have received the June revenue and expenditure figures. [Because] that’s when we start to take in some significant corporate income taxes,” Kganyago explained.

He said there would be some “compensatory effects” of inflation having declined slower then first hoped, because “that means we will still be able to pick up some significant revenue than would otherwise have been the case.”



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