Gordhan pins recovery hopes on policy timing

POLICY co-ordination and timing are critical if early signs of a global economic recovery are to be sustained.

Finance Minister Pravin Gordhan brought this message at the weekend, on his return from a Saturday meeting of Group of 20 (G20) finance ministers and central bank chiefs in London.He said he was ‘cautiously hopeful’ that the recovery would continue if governments applied policy successfully.The G20 represents leading developed and developing countries. The meeting was in preparation for a summit of G20 leaders in Pittsburgh towards the end of the month.Gordhan said the time was not right for governments to withdraw their economic stimulus packages – referring to massive spending programmes instituted by governments to lift their economies out of recession. But he said they would have to plan exit strategies to be implemented when the time was right.In other words, governments would have to find a way to withdraw support without destabilising economies and aborting the recent recovery.’The G20 made a profound commitment to a coordinated effort, but there will be some flexibility on timing as countries have different needs,’ Gordhan said.South Africa lagged the world when the recession started at the end of 2007, with its first quarter of contraction coming a year later. The country is now behind in the recovery; gross domestic product shrank three per cent in the second quarter after a contraction of more than six per cent in the previous quarter and nearly two per cent in the fourth quarter of last year.Gordhan spoke of signs that France and Germany were working their way out of recession. Countries in the East were doing very well, while Africa ‘is a mixed picture’.He stressed the benefits of South Africa’s trade with the East, where economic activity is stronger than in the West.He also spoke of the importance of looking beyond the stimulus packages and the exit strategies ‘to a more sustainable growth path for the world in which structural imbalances are addressed’.Before the recession, Western economies consumed more than they saved. The spending was supported by Chinese savings, as China’s government bought US treasury bonds and made other investments in the West. At the same time, the reluctance of Chinese consumers to spend made the world over reliant on growth in the US economy.These imbalances set the scene for the financial crisis that started more than two years ago and eventually dragged the global economy into a recession.Gordhan defended local banks against criticism that they might be relaxing their strict lending policies too soon.Last week Standard Bank said it was prepared to grant 100 per cent homeloans on properties worth up to N$1,5 million. Other banks have also started to loosen their lending stances.Gordhan said: ‘It’s one of those situations where if they lend too much they get us into trouble and if they over tighten they also get us into trouble.’He acknowledged that banks had been criticised for being reluctant to lend and said: ‘I don’t think the kind of loosening we are now seeing is inappropriate.’It’s important that banks support not just households, but also give businesses the leeway to stay in business and keep their workforces in jobs and make sure people are not out in the streets.’- Business Report