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(Updates with finance minister comments starting in second paragraph.)
Sept. 28 (Bloomberg) -- The European debt crisis, which threatens to push the global economy into recession, poses a challenge for the South African government’s attempt to boost growth and create jobs, Finance Minister Pravin Gordhan said.
South Africa is trying to balance fiscal credibility and efforts to grow the economy, Gordhan told reporters today in the capital, Pretoria, after returning from meetings of the International Monetary Fund and World Bank in Washington. The country’s February budget called for “growth-friendly” fiscal restraint, he said.
Global markets tumbled last week as concern mounted that the debt crisis in Europe may spread beyond Greece and derail a global recovery. South Africa’s economy expanded at the slowest pace in almost two years in the second quarter, as manufacturing and mining output plunged. Governments in Europe, which buys about a third of South Africa’s manufactured goods, are slashing budgets to ease the debt crisis. Gordhan will announce new fiscal forecasts in a mid-term budget statement on Oct. 25.
Growth in Africa’s biggest economy slowed to an annualized 1.3 percent in the second quarter, according to the statistics agency. The government estimates it needs growth of 7 percent a year over the next decade to slash the jobless rate to 14 percent from 25.7 percent.
“The normal recoveries aren’t happening,” Gordhan said. “Given the abnormalities and tumultuousness, how do you manage fiscal credibility and how do you ensure your economy grows. That’s the mix some countries aren’t getting right.”
A depreciation in the value of the rand, if sustained, will add to inflation, Gordhan said. Policymakers are “scratching our heads” on how to deal with the rand’s decline, he said. Labor unions and the government have previously said the currency’s strength hurt exporters.
The rand had the worst weekly decline since October 2008 last week, falling to as low at 8.6165 against the dollar before paring losses. It is 15 percent weaker this year, the worst performing of the 16 major currencies tracked by Bloomberg. The rand strengthened 0.6 percent to 7.8165 by 3:35 p.m. in Johannesburg.
A depreciation in emerging-market currencies represent an “overshoot” and may ease as risk appetite improves, Gill Marcus, the governor of South Africa’s central bank, said in an opinion article published in Johannesburg-based Financial Mail today. The global economy is in a “danger zone,” she said.
--Editors: Gordon Bell, Karl Maier
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