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SA out of the worst of recession

by BuaNews Online
on 27 Oct 2010
BuaNews Online
BuaNews Online

The worst of the recession is over with real growth in the country's Gross Domestic Product (GDP) expected to come in at 3 percent this year, after reaching 3.9 percent in the first half of the year.

Presenting his Medium Term Budget Policy Statement on Wednesday, Finance Minister Pravin Gordhan cautioned however that with an ever-changing world there was a need to remain vigilant.

Driven by an increase in household demand and lower inflation, GDP growth is expected to rise to 3.5 percent next year and hit 4.4 percent in 2013.

Gordhan said Africa was set to become the second fastest region after Asia and added that the recovery of global demand, which is being driven by emerging economies, had helped South Africa to secure high prices for its major commodities.

While China, Brazil and India, are expected to grow by an estimated 7.1 percent this year and 6.4 percent next year, the US and EU are set to only experience 2.6 percent and 1.7 percent respectively, in GDP growth this year.

Among the other trends revealed by Gordhan include:

* In the first half of the year, manufacturing value add grew by 5.8 percent compared with the previous year.

* The value add in mining increased by just 2.2 percent in the first six months of the year.

* The construction sector grew at a slower 4.2 percent in the first half of the year, compared with the same period last year when the sector increased by 7.8 percent.

* Retail sales were 4.6 percent higher in August compared with a year earlier, but that the pace had slowed since the end of the World Cup.

Gordhan said the government was expected to spend R811.2 billion on infrastructure in the next four years - 40.3 percent of this on the energy sector and 26.1 percent on transport.

Real investment by public corporations is expected to grow by about 12 percent in 2010, much of this led by spending by Eskom on power stations, by Transnet on rail, ports and pipelines and by the South African National Roads Agency on roads.

The sustained investment by state-owned enterprises has helped to offset weak investment by business.

Private investment is expected to recover as higher domestic consumption lifts demand and as capacity utilisation in manufacturing rises for domestic and regional sectors.

The country's unemployment rate increased from 21.9 percent in 2008 to 25.3 percent as the country lost over a million jobs between the fourth quarter of 2008 and the second quarter of this year.

High wage settlements - which in the nine months to September were 8.3 percent compared to CPI inflation of 4.7 percent - may have reduced the incentive for companies to hire workers laid off during the recession, said Gordhan.

Meanwhile, the government wants its development finance institutions to play a greater role in financing its development goals.

Gordhan said the Landbank had been strengthened with a R3.5 billion capital injection over the next three years, to restore investor confidence and support emerging farmers.

The National Housing Finance Corporation had secured international funds from multilateral agencies to help fund low-cost housing projects, while the government has recently increased the lending capacity of the Development Bank of Southern Africa (DBSA) to fund the maintenance of municipal infrastructure and social services.

The government had also directed the Industrial Development Corporation to use its balance sheet to help distressed firms to stem job losses.

Government revenue is expected to grow from last year's 27.2 percent of GDP (R666.9 billion) to 28.4 percent (R761 billion) in the current financial year, touching 28.7 percent (R843 billion) of GDP in 2011/12.

The budget deficit is expected to decline from 6.7 percent in 2009/10 to 5.3 percent in the current financial year, reaching 4.6 percent in the next financial year. - BuaNews

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