Manuel: No recession

Cape Town - South Africa is not facing a recession, Finance Minister Trevor Manuel said on Tuesday, but a global slowdown and falling commodity prices will cut exports and hurt the economy.

Manuel also told parliament that the country's macroeconomic policies, including the inflation targeting framework, were sound and flexible enough to respond to any downturn.

"There is no recession," he told parliament's finance committee at a briefing on the global financial crisis. Analysis by the Treasury did not suggest the country faced two consecutive quarters of shrinking economic output. "So we are not looking at a recession in South Africa," he said.

Major industrial economies - including the United States, Japan and the euro zone - are either in recession or about to enter a prolonged downturn, raising the prospect of slower growth in developing countries.

Manuel said a recession in those countries would harm South Africa, knocking income from exports and affecting the capital flows needed to finance a wide current account deficit.

"Commodity price changes alone have ambiguous effects on South Africa, but we should be under no illusions about the fact that our economy will suffer along with the rest of the world," he said in a later speech to parliament.

Although South Africa's banking system has been largely unscathed by the global crisis, markets and the rand have been hit by risk aversion and slower world economic growth is expected to dampen domestic output.

The Treasury has forecast growth will slow to 3.7% this year and 3% in 2009 from the average 5% of the past four years. But some analysts say GDP may have declined in the third quarter, due to a sharp slowdown in manufacturing and mining output plus falling retail sales.

Retail plunge

Consumers are trying to cope with a total 5 percentage point increase in the central bank's repo rate to 12% between June 2006 and June 2008.

Official data last week showed retail sales falling for the fifth month in a row in September, and by 5.1% year-on-year for the third quarter. New vehicle sales have been falling for more than a year, and contracted more than 30% last month compared with October 2007.

The data has raised speculation that interest rates will be cut soon, despite inflation remaining far outside the bank's 3 to 6 percent target and the rand being sharply weaker this year.

Manuel said a small country like South Africa could be expected to miss its inflation target, particularly given sharply rising food and fuel prices.

"What matters is that we have a framework that is flexible enough to ensure that we achieve low inflation over time and with due regard for economic growth," he said.

- Reuters