Healthy bank sector to shield SA

Johannesburg - South Africa's economy will slow in 2008 but a healthy banking sector will stave off a recession even in the face of global financial turmoil, President Kgalema Motlanthe said on Friday.

Motlanthe said in a speech in parliament that South Africans had to lower their expectations for growth, along with other emerging markets.

"Accordingly, in South Africa we have had to lower our expectations too, not because our own financial sector is threatened, it is not," he told legislators.

"We are not going to enter a recession, and indeed we expect our economic performance to be better than that of many of our peers," he said, adding a multi-billion dollar infrastructure spending programme would help shore up the economy.

The National Treasury in October cut its growth forecast for 2008 to 3.7%, falling to 3.0% a year later, much slower than the 5% the economy has averaged in the last four years. It cited the deteriorating global economic outlook.

Motlanthe said South Africa should be spared the worst of the crisis due to the health of the local financial sector.

"Our financial institutions have been scrutinised; they have been tested; and they have passed those tests with flying colours."

He said government and households should watch spending in order to withstand the challenges of the current crisis.

"Both government and ... households should make sure not to make financial commitments that might be difficult to sustain."

Taking strain

South Africa's households are currently under strain from high inflation and interest rates after several years of strong growth which have boosted household rates of indebtedness.

The ruling ANC is under pressure from its leftist allies to increase government spending on the poor and do away with a conservative fiscal stance.

Motlanthe also warned that South Africa could face more power shortages if users did not use electricity efficiently.

South Africa suffered rolling blackouts in the first quarter of this year as state utility Eskom struggled to meet demand.

"The very small margin between electricity demand and electricity supply has necessitated some rationing of power," Motlanthe said.

"In this regard this summer will be a very difficult period when most of the Eskom maintenance will be undertaken ... We urge all consumers, businesses and private homes to be very careful about their use of electricity."

Eskom will spend over R343bn over the next five years to boost capacity and upgrade ageing infrastructure. Analysts say the bill could balloon by over R100bn in the difficult global credit environment.

- Reuters