Manuel still optimistic on growth

Pretoria - Finance Minister Trevor Manuel has remained relatively optimistic about SA's economic growth in the face of the global financial crisis, although he was forced to make a massive revision to growth forecasts for next year.

"While the endpoint of the global credit crisis does not lend itself to accurate predictions, SA appears set to avoid the worst consequences of these developments," Manuel said in the medium-term budget policy statement (MTBPS).

But growth forecasts for next year are looking pedestrian. Growth for next year has been revised substantially downwards, from 4.2% in the February Budget to only 3%. While this is way down on the 5% growth seen between 2004 and 2007, the key point is that it is still far from a recession and is the type of growth that SA used to be lucky to get.

Manuel is more optimistic about economic growth for this year than private sector economists, with a growth forecast of 3.7%. This compares with his February Budget forecast of 4%. The most optimistic private sector forecasters are putting growth this year at 3.5%.

Consumers are in for a more dismal time next year than this year, if Manuel's predictions are anything to go by. Household consumption expenditure is forecast to grow only 1.6% in 2009 from 2.8% this year and a heady 7% in 2007. Household consumption had slowed considerably in response to higher interest rates and inflation had eroded consumers' purchasing power, the MTBPS said.

However, Manuel said that strong investment would continue to underpin growth over the next few years. Investment had risen from about 15% of gross domestic product (GDP) in 2002 to 22% in the first half of 2008. Real growth in fixed investment was expected to remain high, averaging about 9% a year over the medium term, well in excess of overall GDP growth.

On his assumptions for the global economy, Manuel said one possible scenario was a deep recession and lingering financial uncertainty in the developed economies, resulting in a reduction in international trade.

There would be a concomitant decline of economic growth in emerging markets and continuing financial volatility. In such a scenario, SA could expect a prolonged period of much slower growth. However, this wasn't the scenario that Manuel had assumed in making his growth projections.

He said a second and more hopeful scenario was that international governments' policy actions resulted in a period of global economic adjustments over the medium term, followed by more balanced growth.

"Our current economic forecast reflects this more benign set of assumptions," Manuel said.

- Fin24.com