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Cape Town - South Africa's direct economic exposure to countries at the epicentre of the eurozone debt crisis is reasonably low, Deputy President Kgalema Motlanthe said on Wednesday.
"Although the European Union is South Africa's biggest trading partner, exports to Portugal, Ireland, Italy, Greece and Spain constitute just about 5% of the total," Kgalema Motlanthe said in response to questions in parliament.
However, the economic slowdown in the eurozone reduces demand for South Africa’s exports, since Europe is one of South Africa’s major trading partners, he said.
Slowing global growth also raises prospects of weaker commodity prices and constrained government revenue.
Increased risk perceptions and financial market turbulence would raise uncertainty and reduce investor risk appetite, contributing to greater volatility of international capital flows and emerging market currencies, including the rand.
This raised the potential for large-scale capital outflows and currency depreciations.
There was also a risk of increased trade protectionism following a global slowdown as countries attempt to protect their own interests, Motlanthe said.
This would further reduce global growth and could harm South Africa’s exports even more.
However, South Africa’s financial system remains relatively well insulated from the current turmoil, with little exposure to foreign funding. Foreign funding accounts for only 5% of overall bank funding - a small proportion by international standards, Motlanthe said.
To date, the impact on South Africa has been primarily through falling business and consumer confidence and financial market variables such as capital flows and the exchange rate.
The medium-term budget policy statement proposed an economic support package of R25bn over the next six years to boost competitiveness and promote structural change.
This initiative would build on several broader programmes to support growth and employment.
The government would continue to call on European governments and authorities to act more decisively to build the necessary “firewalls” to prevent the contagion spreading even further and creating increased uncertainty and economic decline across the globe.
It would also endeavour to diversify South Africa’s trading partners and work with businesses to promote exports to other parts of the world, Motlanthe said.
"Although the European Union is South Africa's biggest trading partner, exports to Portugal, Ireland, Italy, Greece and Spain constitute just about 5% of the total," Kgalema Motlanthe said in response to questions in parliament.
However, the economic slowdown in the eurozone reduces demand for South Africa’s exports, since Europe is one of South Africa’s major trading partners, he said.
Slowing global growth also raises prospects of weaker commodity prices and constrained government revenue.
Increased risk perceptions and financial market turbulence would raise uncertainty and reduce investor risk appetite, contributing to greater volatility of international capital flows and emerging market currencies, including the rand.
This raised the potential for large-scale capital outflows and currency depreciations.
There was also a risk of increased trade protectionism following a global slowdown as countries attempt to protect their own interests, Motlanthe said.
This would further reduce global growth and could harm South Africa’s exports even more.
However, South Africa’s financial system remains relatively well insulated from the current turmoil, with little exposure to foreign funding. Foreign funding accounts for only 5% of overall bank funding - a small proportion by international standards, Motlanthe said.
To date, the impact on South Africa has been primarily through falling business and consumer confidence and financial market variables such as capital flows and the exchange rate.
The medium-term budget policy statement proposed an economic support package of R25bn over the next six years to boost competitiveness and promote structural change.
This initiative would build on several broader programmes to support growth and employment.
The government would continue to call on European governments and authorities to act more decisively to build the necessary “firewalls” to prevent the contagion spreading even further and creating increased uncertainty and economic decline across the globe.
It would also endeavour to diversify South Africa’s trading partners and work with businesses to promote exports to other parts of the world, Motlanthe said.
