SA revises down 2006 GDP forecast

CAPE TOWN – South Africa’s economy is expected to grow at 4,4 per cent in 2006, down from the five per cent seen by the government in February, the National Treasury said yesterday.

The current account deficit meanwhile is also forecast to decline slightly over the next three years but will remain near recent record levels, the National Treasury said in the 2006 Medium Term Budget Policy Statement, helped by lower oil prices. But imports to drive a massive infrastructure spending programme would keep the gap large.The deficit was forecast at 5,7 per cent of gross domestic product in 2006, easing to 5,3 per cent next year before rising again to 5,8 per cent by 2009.The deficit jumped to 6,4 per cent in the first quarter of 2006 – a two decade record – knocking the rand currency, and eased only slightly to 6,1 per cent in the second quarter.But Finance Minister Trevor Manuel told reporters ahead of unveiling the document in parliament that the interpretation of central bank governor Tito Mboweni’s comments, expressing concern over the deficit and consumer spending were “frequently overdone”.The deficit on the current account has weighed heavily on the rand, pushing the currency down around 18 per cent against the US dollar so far this year, and prompting repeated warnings of further risks to inflation from Mboweni.Government and state-owned companies are leading a massive infrastructure spending programme over the next few years, with much of the equipment expected to be sourced outside South Africa.This will keep pressure on the trade account, despite an improved export performance stemming from a weaker rand currency.The central bank has hiked interest rates by 150 basis points to 8,5 per cent so far this year to tame rising inflationary pressures.”Somewhat slower household spending, declining oil prices, a rise in government savings a more competitive currency are expected to moderate the current account deficit over the short to medium term,” the Treasury said.The shortfall has so far been covered by financial inflows, but the short-term nature of the portfolio investments raise the risk of capital damaging outflows.”While financial inflows more than offset the current account deficit at present, accelerated growth over the longer term will depend on industrial and trade policy reforms that bolster exports and moderate South Africa’s trade deficit,” the Treasury said.”Increased government savings over the medium term will further reduce risks associated with the current account deficit,” it said.Economic growth is expected to remain robust but forecasts were cut for the next four years, as consumer spending eases on the higher interest rates.The economy should grow by 4,4 per cent in 2006, slower than an estimated five per cent announced in the February budget.Growth was likely to remain at that level in 2007 before picking up to 4,8 per cent in 2008 and 5,3 per cent in 2009.”South Africa economic conditions are buoyant, and the outlook for robust growth to 2009 remains positive,” the Treasury said.The economy expanded by 4,9 per cent in 2005 – its fastest rate in more than two decades.South Africa’s government is leading a programme to lift GDP growth to at least six per cent by 2010, a level seen as vital to swathes through stubbornly high unemployment, officially estimated at 25,6 per cent.Nampa-ReutersBut imports to drive a massive infrastructure spending programme would keep the gap large.The deficit was forecast at 5,7 per cent of gross domestic product in 2006, easing to 5,3 per cent next year before rising again to 5,8 per cent by 2009.The deficit jumped to 6,4 per cent in the first quarter of 2006 – a two decade record – knocking the rand currency, and eased only slightly to 6,1 per cent in the second quarter.But Finance Minister Trevor Manuel told reporters ahead of unveiling the document in parliament that the interpretation of central bank governor Tito Mboweni’s comments, expressing concern over the deficit and consumer spending were “frequently overdone”.The deficit on the current account has weighed heavily on the rand, pushing the currency down around 18 per cent against the US dollar so far this year, and prompting repeated warnings of further risks to inflation from Mboweni.Government and state-owned companies are leading a massive infrastructure spending programme over the next few years, with much of the equipment expected to be sourced outside South Africa.This will keep pressure on the trade account, despite an improved export performance stemming from a weaker rand currency.The central bank has hiked interest rates by 150 basis points to 8,5 per cent so far this year to tame rising inflationary pressures.”Somewhat slower household spending, declining oil prices, a rise in government savings a more competitive currency are expected to moderate the current account deficit over the short to medium term,” the Treasury said.The shortfall has so far been covered by financial inflows, but the short-term nature of the portfolio investments raise the risk of capital damaging outflows.”While financial inflows more than offset the current account deficit at present, accelerated growth over the longer term will depend on industrial and trade policy reforms that bolster exports and moderate South Africa’s trade deficit,” the Treasury said.”Increased government savings over the medium term will further reduce risks associated with the current account deficit,” it said.Economic growth is expected to remain robust but forecasts were cut for the next four years, as consumer spending eases on the higher interest rates.The economy should grow by 4,4 per cent in 2006, slower than an estimated five per cent announced in the February budget.Growth was likely to remain at that level in 2007 before picking up to 4,8 per cent in 2008 and 5,3 per cent in 2009.”South Africa economic conditions are buoyant, and the outlook for robust growth to 2009 remains positive,” the Treasury said.The economy expanded by 4,9 per cent in 2005 – its fastest rate in more than two decades.South Africa’s government is leading a programme to lift GDP growth to at least six per cent by 2010, a level seen as vital to swathes through stubbornly high unemployment, officially estimated at 25,6 per cent.Nampa-Reuters