Growth target shrinks

Image courtesy

Image courtesy

National Treasury has revised its economic growth forecast for the year to 2.1% from the 2.7% predicted in its February budget speech.

This revision is in line with recent lower predictions for the local economy by the International Monetary Fund, the World Bank and the Reserve Bank.

The forecast follows a general trend of slower growth in recent years. Gross domestic product grew at 3.5% in 2011.

According to the Medium Term Budget Policy Statement (MTBPS), this trend reflects the impact of negative international and local factors.

“South Africa’s economy has also been affected by the limited availability and rising cost of electricity, labour disputes, rising unemployment and lower household consumption, weak business confidence and lower private sector investment,” the MTBPS reads.

The rate of growth is expected to accelerate in the next few years and to reach 3.5% by 2016.

Treasury concedes, however, that on this growth trajectory, employment will only grow by about 1.7% per annum, which would not be sufficient to reduce the unemployment figure considerably.

Concerns include the conclusion of fiscal policy debates in the United States and how the tapering of quantitative easing will affect markets going forward. “Volatility in global capital flows will expose many emerging markets to balance-of-payment risks,” the MTBS states.

In addition, it cites the fragility of the euro zone, despite its having emerged from a recession, which has undercapitalised banks and stands to lower growth across the world economy.




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