The South African economy is expected to grow by 3,3 percent this year, although the threat of war in Iraq raised uncertainty for economies across Africa, Finance Minister Trevor Manuel said on Wednesday.

Presenting the 2003/04 Budget in the National Assembly, he also said the government remained committed to inflation targeting.

The minister said the resilience of the local economy in this global context was testimony to the success of the government's economic reforms.

Gross domestic product (GDP) grew by three percent in 2002, despite a depressed world economy, and should rise to 3,7 percent next year, and four percent in 2005.

"Our economic performance is in marked contrast to the experience of the rest of the world."
Investment grew by 6,3 percent last year, and buoyant consumption spending, on the strength of an improved household position, should underpin continued growth.

However, the threat of war in the Middle East raised uncertainty, not only in respect of South African inflation, but for the entire continent.

As net importers of oil, African countries would be exposed to higher external liabilities should oil prices stay at current high levels, more than US30 a barrel.

Manuel said CPIX -- the Reserve Bank's inflation monitor that measures consumer price less mortgage costs -- measured an average 10 percent in 2002, having peaked at 12,7 percent in November.

Much of the increase was due to rising food prices, housing and medical costs.

The 400 basis point increase in interest rates, as well as the recovery of the rand last year, would help dampen prices in 2003.

CPIX was expected to fall to an average of 7,7 percent this year, and within the target range of between three and six percent in 2004.

"We remain committed to inflation targeting, and believe that price stability remains one of the cornerstones of sound economic management."
The target of three to six percent would remain for 2005, and the target for 2006 would be announced at the release of the Medium Term Budget Policy Statement in October, he said.

The minister said that while food price inflation had eased somewhat since highs last year, food prices remained a cause for concern.

"We observe that the futures price of white maize has fallen from a peak of over R2000 a ton to R940 currently.

"I trust that in the determination of prices by producers, distributors and retailers we will see prompt corresponding downward adjustments, so that the consumer benefits fully from this favourable trend," he said - Sapa