Manuel dismisses recession talk

Cape Town - Finance Minister Trevor Manuel reiterated on Thursday that South Africa's economy was not in recession, but the Treasury warned that there were downside risks to growth.

Manuel forecast in the 2009 budget on Wednesday that expansion may ease this year to its lowest rate in more than a decade, stung by a global downturn and depressed household demand, weighed down partly by high interest rates.

Retail sales are falling and new vehicles sales are plunging, while manufacturing, the economy's second biggest sector, suffered its biggest contraction in 10 years in December.

"We're waiting for the fourth quarter numbers to come and then we have to see what the first quarter looks like, but on past performance we are not in recession," Manuel said at a post-budget breakfast meeting.

"Although it sometimes feels in people's minds that the economy is in recession ... as of now we are looking at positive growth."

Manuel on Wednesday estimated growth in 2008 of 3.1% in 2008, slowing to 1.2% this year before recovering somewhat as the global economy improves and lower interest rates revitalise consumers.

The 2009 forecast figure would be the lowest since 1998, following several years of 5% expansion.

Data earlier this week showed manufacturing output fell 7.0% in December from a 6.4% decline the previous month, raising concern the economy may have contracted in the fourth quarter from the third quarter's decade-low 0.2% expansion.

Some economists say the economy will fall into recession - two quarters of negative growth - in the first half of 2009.

Rate cuts

Statistics South Africa releases Q4 economic data on February 24 and central bank Governor Tito Mboweni has already said the monetary policy committee may hold a special meeting on interest rates if the data disappoints.

The MPC cut its repo rate by 100 basis points to 10.5% last week, adding to December's 50 basis point drop, on slowing inflation and signs the economy is struggling.

Kuben Naidoo, head of the Treasury's budget office, told parliament's finance committee the forecast may be at risk should the global downturn persist longer than expected.

"There are downside risks to growth. If the world economy does not recover towards the end of the year, that would have implications for us."

But he added that the government had the space to maintain its counter-cyclical fiscal stance.

The Treasury lifted spending in the budget, widening the budget deficit to 3.8% of gross domestic product for 2009/10 from 1.0% in 2008/09 and surpluses for the three years before that, to try to stimulate the economy.

Manuel, the world's longest-serving finance minister who presented his 13th budget this week, earlier told SAFM radio he still enjoyed and was challenged by his job.

"I still enjoy it and I can't think of anything that would challenge me as much," he said in reply to a question on whether he will stay on in the post after elections this year.

"This was the 13th budget I have delivered ... this budget has been very different, it feels like the first one."

Manuel is widely respected by the market, and his remaining in the position may soothe investor fears of a major shift in policy under a more left-leaning ruling African National Congress.

- Reuters