South African economy still in slowdown

The South African economy is slowing more sharply than expected this year the country’s Finance Minister warned on Wednesday as he unveiled a raft of belt-tightening measures that target government perks.

“We now expect growth of about 2.1 percent in the South African economy this year rising to 3.5 percent by 2016,” South Africa’s Finance Minister Pravin Gordhan told lawmakers, revising down an earlier forecast of 2.7 percent growth for this year.

The economy has been slowing at sharper than expected rates, with the International Monetary Fund this month lowering its 2013 growth forecast to two percent.

South Africa is the continent’s most developed economy, but the latest figure is less than half of sub-Saharan Africa’s anticipated five percent and also falls below the IMF’s world growth projection of 2.9 percent.

Recent growth has been sluggish, falling to 2.5 percent last year and from 3.5 percent in 2011.

Presenting his medium-term budget policy statement to parliament, Gordhan said the budget deficit would be 4.2 percent and that of the current account would hit 6.5 percent.

“In recent years, the current account deficit has been comfortably financed by capital inflows, signalling the broad confidence of international investors in South Africa’s economic prospects,” states the budget document.

“Investor sentiment is volatile, however, and global capital allocation is likely to shift as the US monetary authorities taper their asset purchase programme.”

The government’s debt bill will snap up nearly 10 percent of the treasury’s 1.1 trillion rand ($113 billion) budget.

The debt ratio is set to reach 39.3 percent of GDP this year and 43.9 percent in 2016.

“We’re very mindful of the fact that there are risks at our doorstep,” Gordhan told journalists ahead of his speech.

“Those risks being the tapering of quantitative easing, any other turbulence within financial markets, (and) the fact that we carry the so-called double deficit — current account and fiscal.”

But Gordhan was confident that growth will pick up, and said he believed South Africa had what it takes to manage any turbulence that might arise.

Foreign impacts such as tapering in the United States and falling commodity prices had hit home, alongside local challenges of labour disputes, electricity constraints, joblessness and weak business confidence.

And after a wave of crippling and deadly strikes last year, South Africa has seen more stoppages on mines and shutdowns at major car manufacturing plants this year.

“Production stoppages have been most pronounced in mining and manufacturing,” said the budget statement.

“This has created considerable volatility in GDP, as declines in one quarter are followed by growth in the next – a pattern that prevents the economy from sustaining higher growth momentum.”

The minister announced a raft of belt-tightening measures for the government officials.

Coming in the wake of several high-profile scandals, the measures will include restrictions on flights, car hire, accommodation, catering, entertainment and conference spending.

Gordhan said the steps were aimed at “cutting costs and managing wasteful expenditure and abuse in government”, and the savings “could be a few billion rands if we do it right”.

“Wasteful expenditure on expensive cars and overseas trips is unacceptable.”

The measures already adopted by the cabinet come ahead of next year’s general election and amid public outrage over perceptions of high-living leaders.

These ranges from a plush security upgrade to President Jacob Zuma’s own private rural home and an since-axed minister who took a boyfriend on an overseas trip.