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South Africa: Slowdown Could Limit Country's Growth 'To 3,2 Percent'
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Business Day (Johannesburg)
25 July 2008
Posted to the web 25 July 2008
Thabang Mokopanele
Johannesburg
GROWTH is likely to slow significantly this year and next as weaker private sector investment, a global economic slowdown and falling consumer spending weigh on SA's economy, says the Bureau for Economic Research (BER).
The BER said yesterday it expected gross domestic product (GDP) growth to slow from 5% last year to 3,2% this year and a mere 3% next year. Its outlook is less optimistic than Finance Minister Trevor Manuel's, who said this week the treasury was still "comfortable" GDP growth would average 4%.
Manuel said stabilisation of the national power grid and the absence of significant outages should have a "significant positive impact on second-quarter growth in the mining and electricity sectors" and that he was confident the economy would perform strongly this year.
Manuel's forecast is in line with that of the World Bank, which said last month it expected SA's economy to grow by a robust 4,2% this year, surpassing consensus forecasts for a sharp slowdown prompted by higher interest rates, power shortages and global risk aversion.
The World Bank said rising investment in power plants and other infrastructure would help offset waning consumer demand and the bleaker global investment mood.
BER economist Hugo Pienaar said first-quarter GDP figures, which showed that economic growth moderated from 5,3% in the final quarter of last year to 2,1% in the first quarter of this year, "provided the first real confirmation that the economy is in a midst of a significant cyclical slowdown".
The mining and manufacturing sectors -- which play a major role in the economy -- were the hardest hit in January due to power outages.
Rising inflation, a weaker global economy and higher interest rates have put the key financial services sector under pressure.
"Growth in the financial services sector which has contributed hugely to economic growth over the past couple of years is no longer as pronounced and we expect the downward trend to continue," Pienaar said.
Although public investment is strong due to spending on infrastructure by the government, there are concerns about private investment, especially the residential market, which is experiencing a slowdown.
Econometrix Treasury Management MD George Glynos said the ratio of public and private sector investment needed to improve.
"We need to understand that the economy is made up of more than the consumer sector and that we are not going to enter a recession because consumer spending has slowed down. The production side of the economy has to improve for the country to weather the global economic slowdown," Glynos said.
Citadel chief economist Dave Mohr said that SA's economic slowdown was likely to continue into next year as it was exposed to the overall global economic slowdown.
"SA as an open economy will be exposed to global economic slowdown shocks as it is seen in the US, Europe and rest of the world.
"But I think interest rates should start stabilising from next year which will boost the economy."
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Consensus forecasts from a Reuters poll last month predicted that SA's pace of growth would slow to 3,4% this year from an average of 5% over each of the past four years.
Around 3% is your best bet.
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