Bloomberg News

Gordhan Cuts South African Economic Growth Forecast to 2.7%

February 22, 2012

Feb. 22 (Bloomberg) -- South African Finance Minister Pravin Gordhan cut his forecast for economic growth for a second time in four months as Europe, the nation’s largest trading partner, faces recession.

Gross domestic product will probably expand 2.7 percent in 2012, less than the 3.4 percent estimated in October, Gordhan told lawmakers in a budget speech in Cape Town today. The economy grew an estimated 3.1 percent last year, he said.

The International Monetary Fund lowered its estimate for South African growth to 2.5 percent last month as it projected Europe will contract 0.5 percent. That’s less than half the 7 percent expansion South Africa says it needs to meet a pledge to create 5 million jobs by 2020. The unemployment rate of 23.9 percent is the highest of 61 countries tracked by Bloomberg.

“We have to implement a strategy for faster and more inclusive economic growth,” Gordhan said. “We are not doing well enough in growing our economy and creating jobs for our young people.”

Africa’s biggest economy will probably add 850,000 jobs over the next three years, lowering the unemployment rate to 23 percent in 2014, the National Treasury said. President Jacob Zuma had pledged to cut the jobless rate to 14 percent by 2020.

The government’s growth target is similar to the central bank’s estimate of 2.8 percent expansion for 2012. The economy expanded an annualized 1.4 percent in the third quarter, close to a two-year low, as manufacturing and mining contracted. Pretoria-based Statistics South Africa releases fourth quarter growth data on Feb. 28.

Europe Growth

“A high degree of risk clouds the global outlook,” the National Treasury said in its Budget Review today. “While global developments are likely to hold back growth over the short term, the domestic outlook remains positive.”

Europe buys about a third of South Africa’s manufactured exports and is a destination for 22 percent of total shipments.

Gross domestic product will probably expand 3.6 percent in 2013 and 4.2 percent in 2014, down from October’s estimates of 4.1 percent and 4.3 percent respectively.

Slower world growth and record low interest rates in the U.S. and Europe will subject the rand to “swings in global risk appetite,” the Treasury said. The rand gained more than 4 percent against the dollar this year after dropping 18 percent in 2011 as investors sold higher risk, emerging market debt.

Inflation is forecast to average 6.2 percent this year, higher than the 5.4 percent projected in October, according to the Treasury. The inflation rate will slow to an average of 5.3 percent in 2013 and 5.1 percent in 2014, it said.

Interest Rates

The Reserve Bank has kept its benchmark interest rate unchanged at 5.5 percent since November 2010 as inflation exceeded the target of 3 percent to 6 percent in November and December. Governor Gill Marcus said on Jan. 19 inflation will probably remain outside the range this year.

“Inflationary pressures are expected to persist in 2012 in response to rising food prices, sustained weakness of the rand, wage pressures and continuing increases in administered prices, including electricity tariffs,” according to the Budget Review.

The current-account deficit, the broadest measure of trade in goods and services, will widen to 4.3 percent of gross domestic product this year from 3.3 percent in 2011 as demand for exports decline because of Europe’s debt crisis, the Treasury said. South Africa posted a trade deficit last year after its first surplus in seven years in 2010.

--Editor: Nasreen Seria, Gordon Bell

To contact the reporter on this story: Andres R. Martinez in Cape Town at amartinez28@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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