SA’s Manuel warns of market turmoil

PRETORIA – South Africa’s large current account deficit is a major chink in its armour given a low savings rate and global financial market turmoil, Finance Minister Trevor Manuel said yesterday.

South Africa’s current account deficit swelled to 8,1 per cent of GDP in the third quarter of 2007, and is expected to stay around those levels for at least the next three years. Data due tomorrow is likely to confirm a deficit of more than seven per cent for the year as a whole, which would be a new near three-decade record.”I have to repeatedly …mention the deficit on the current account,” Manuel said at a tax symposium.”The gap of just over seven per cent between our investment rate of just over 21,2 per cent of GDP, compared to our 13,8 per cent savings rate is the major chink in our armour, somewhat accentuated by the current turmoil on global financial markets.””We are dependent on foreign capital inflows to fund our rising current account deficit of 7,4 per cent in 2007,” Manuel said.He later told reporters this was not the official number, which will be revealed in tomorrow’s central bank bulletin.The deficit has weighed heavily on South Africa’s rand, and current global financial turbulence has placed the inflows that are needed to fund it at risk.Manuel later told reporters the market turmoil which originated in the housing crisis in the United States would be felt around the world, including South Africa.”What we are seeing now is the first of these storms,” he said, referring to comments in his budget speech last month warning of difficult times.”A recession in the US will have a profound impact on the global economy.”Manuel said any “test of vulnerability” will be felt across the world, and this was likely to be the case in South Africa.”We are (simply) going to have to weather the storm,” he said, adding that the country’s fiscal policies were aimed at alleviating the effect of such problems.The rand slipped to a five-year low against the dollar yesterday and a new record low against the euro as investors dropped riskier assets on heightened fears that the US will fall into recession.Manuel, however, said the situation should be seen in the context of the global environment.”If I were concerned every time the market moves I would probably have been committed to an asylum a long time ago.”Nampa-ReutersData due tomorrow is likely to confirm a deficit of more than seven per cent for the year as a whole, which would be a new near three-decade record.”I have to repeatedly …mention the deficit on the current account,” Manuel said at a tax symposium.”The gap of just over seven per cent between our investment rate of just over 21,2 per cent of GDP, compared to our 13,8 per cent savings rate is the major chink in our armour, somewhat accentuated by the current turmoil on global financial markets.””We are dependent on foreign capital inflows to fund our rising current account deficit of 7,4 per cent in 2007,” Manuel said.He later told reporters this was not the official number, which will be revealed in tomorrow’s central bank bulletin.The deficit has weighed heavily on South Africa’s rand, and current global financial turbulence has placed the inflows that are needed to fund it at risk.Manuel later told reporters the market turmoil which originated in the housing crisis in the United States would be felt around the world, including South Africa.”What we are seeing now is the first of these storms,” he said, referring to comments in his budget speech last month warning of difficult times.”A recession in the US will have a profound impact on the global economy.”Manuel said any “test of vulnerability” will be felt across the world, and this was likely to be the case in South Africa.”We are (simply) going to have to weather the storm,” he said, adding that the country’s fiscal policies were aimed at alleviating the effect of such problems.The rand slipped to a five-year low against the dollar yesterday and a new record low against the euro as investors dropped riskier assets on heightened fears that the US will fall into recession.Manuel, however, said the situation should be seen in the context of the global environment.”If I were concerned every time the market moves I would probably have been committed to an asylum a long time ago.”Nampa-Reuters