Oct. 25 (Bloomberg) -- South Africa reduced its forecast for economic growth next year to less than half the pace the government needs to meet its jobs target.
Gross domestic product will probably expand 3.4 percent in 2012, compared with 4.1 percent estimated in February, Finance Minister Pravin Gordhan said in his mid-term budget statement released in Cape Town today. The economy will grow 3.1 percent this year, down from a previous forecast of 3.4 percent.
The European debt crisis, which threatens to push the global economy into another recession, is undermining growth and consumer confidence in Africa’s biggest economy. President Jacob Zuma has pledged to create 5 million new jobs by 2020, requiring economic growth of 7 percent a year. South Africa’s jobless rate of 25.7 percent is the highest of 61 countries tracked by Bloomberg.
“Growth at the levels projected, however, remains insufficient for South Africa to meaningfully reduce unemployment and poverty,” the National Treasury said. “For the remainder of 2011, uncertainty and the weak global environment will result in moderate growth.”
South Africa’s economy expanded an annualized 1.3 percent in the second quarter, the slowest pace in almost two years as mining and manufacturing output contracted. Governments in Europe, which purchase about a third of South Africa’s manufactured goods, are cutting spending to reduce budget deficits as the debt crisis in the region worsens.
The Treasury’s growth estimates are lower than those of the central bank, which expects the economy to expand 3.2 percent this year and 3.6 percent in 2012.
Corporate tax earnings, value-added tax and other levies the government collects have eased as economic growth slowed. Total revenue is projected to drop by 10.3 billion rand ($1.3 billion) to 814.2 billion rand in the year through March, the Treasury said. The government is estimating to earn 890 billion rand in revenue next year, 2 percent less than a previous estimate.
Fiscal policy and the Reserve Bank’s decision to keep the benchmark lending rate at a 30-year low of 5.5 percent since November “remains supportive of growth,” the Treasury said. The bank kept the rate unchanged last month as banks in Brazil, Turkey and Indonesia lowered borrowing costs this year to bolster economic growth.
Investors have sold riskier, emerging-market assets as global growth slowed, undermining the rand, which has slumped 16 percent against the dollar in 2011, the worst-performer of the 16 major currencies tracked by Bloomberg.
While the weaker rand will benefit exporters, it may fuel inflation, the Treasury said. Inflation will probably average 5 percent this year and 5.4 percent in 2012, higher than a previous estimate of 4.9 percent and 5.2 percent over that period, the Treasury said.
“To obtain durable benefits from a more competitive currency, exporters need to improve productivity and contain domestic input costs,” the Treasury said.
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