South Africa Forecasts Slight Economic Growth

South Africa Forecasts Slight Economic Growth

South Africa has said its economy may expand slightly faster this year than was forecast in February, but mid-term growth rates look set to fall short of government aspirations.

Finance Minister Pravin Gordhan, on Thursday, in a written response to questions in parliament, said recent above-inflation wage hikes would weigh on state finances in the longer term as government borrowing levels and interest costs rose.

In its 2010 budget tabled in February, the Treasury forecast growth of 2.3 percent this year after the economy contracted 1.8 percent in 2009 in what was South Africa's first recession in nearly two decade.

Growth projections of the ‘future'

Growth was seen at 3.2 percent in 2011 and 3.6 percent the year after.

''The economy performed slightly better than our projections in the first two quarters of the year so the actual growth outcome for 2010 may be moderately higher than our budget forecast.'' Gordhan said.

Gordhan has previously said domestic growth needs to reach 7 percent a year for the next 20 years to cut into an alarmingly high official unemployment rate of about 25 percent.

Treasury modelling showed that if South Africa sustained 7 percent growth for 10 years, national income would double and the economy would generate roughly 5.5 million jobs.

Budget policy due next week

In response to another question from a legislator, Gordhan said while the probability of a double-dip slump in the global economy had increased, ''we have not factored this into our base case scenarios for the global or domestic economies…Additional stimulus measures are therefore not considered necessary at this stage.''

Gordhan will unveil a medium-term budget policy statement to parliament on Oct 27.

The finance minister said a strike by about 1.3 million state workers, recently settled with unions agreeing to 7.5 percent wage increases and 800 rand a month for housing, would not adversely affect the projections.

"Although the public service strike caused disruptions to service delivery and economic activity, we do not expect our (economic growth) forecasts to have been materially affected," Gordhan said.

REUTERS/Yinka