South African GDP forecast cut by treasury

CAPE TOWN Oct 25 (Reuters) - South Africa's National Treasury on Tuesday cut its 2011 economic growth forecast to 3.1 percent, rising to 3.4 next year and said this depended on global prospects and was not enough to reduce unemployment and poverty in line with government goals.


Growth in Africa's largest economy is expected to improve gradually over three years before reaching 4.3 percent in 2014, assuming the European debt crisis is solved and the U.S. avoids recession, while emerging economies continue to perform well.


"The pace and progress of recovery is uncertain. The threat of global contagion is still with us," Finance Minister Pravin Gordhan said in a Medium Term Budget Policy statement in parliament -- his outline of policy objectives over the next three years.

"While this level of growth is not as vibrant as we would like, it is a base on which to build," Gordhan said, adding that the country's economic fundamentals were sound.


Stagnating global growth would reduce South Africa's exports, which is heavily reliant on trade with Europe, while capital flow reversals could see weaker equities prices on the Johannesburg bourse, putting greater pressure on the volatile rand currency.


Less demand from emerging markets could also reduce profitability in the underperforming mining sector, a top employer and major economic sector.


Gordhan said it was time to take difficult decisions as financial constraints forced government to choose between competing goals, with a shift of resources in favour of growth and jobs envisaged while keeping an eye on rising debt levels.


Infrastructure spending, which amounts to 802 billion rand ($101.1 billion) over three years, is key to helping the economy grow, he added.


"Ensuring a sustainable level of debt is also necessary to create an environment in which the private sector can grow, invest and create jobs based on stable inflation, a low cost of capital and a competitive real exchange rate," National Treasury said.



Household spending has helped the recovery but growth in consumption will moderate as rising inflation limits disposable income.


Inflation has stayed inside the Reserve Bank's 3 to 6 percent since February 2010, allowing the Reserve Bank to leave interest rates at 30-year lows. The Treasury expects inflation to average 5 percent in 2011, before rising to 5.4 percent next year. The Reserve Bank has kept the repurchase rate unchanged at a 30-year low of 5.5 percent since November 2010.


"Domestic conditions are largely supportive of growth. Real interest rates are low and will assist in bolstering private-sector consumption and investment over the medium term," National Treasury said.


At a press briefing later, Treasury's director-general Lungisa Fuzile, said the treasury expected pressure from oil and food prices to ease in future.


($1 = 7.932 South African Rand)  
(Reporting by Wendell Roelf; Editing by Marius Bosch)





Source : http://af.reuters.com
Good links
www.gr8insurance.biz (Insurance quotes RSA)
www.woza.mobi (Insurance quotes on your mobile)
bit.ly/come2rsa  (Hotel discount special world wide) 
bit.ly/dialdir (Submit name and phone number  for quick quote )