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Tinkering with SA's fiscal policy unlikely to stimulate growth - DG

Jul 05 2016 14:00

Johannesburg - South Africa's economy is not growing fast enough to create jobs, but growth is unlikely to be stimulated by adjusting the macroeconomic policy, the Treasury's director general Lungisa Fuzile said on Tuesday.

South Africa's unemployment currently hovers close to 27% of the labour force, while data on Monday showed employment in the formal sector fell by 0.2% to 9.273 million people in the first quarter of the year.

"It is unlikely that growth or the stimulation of the economy will come from tinkering or manipulation of macroeconomic policy variables such as adjusting your fiscal policy, in other words reducing taxes or increasing expenditure," Fuzile told a business conference organised by the Gordon Institute of Business Science in Johannesburg.

Finance Minister Pravin Gordhan unveiled his budget in February, which included a package of spending cuts, civil service job freezes and moderate tax hikes on property sales, fuel, alcohol and capital gains as South Africa strives to boost growth and avoid credit rating downgrades.

Fuzile said the choice of which taxes to increase and by how much was informed by making sure the damage to economic growth was minimised.

The Treasury estimates Africa's most industrialised country could grow by 0.9% this year compared with 1.3% in 2015, while the central bank and the International Monetary Fund have forecast 2016 growth at 0.6%.

Fuzile said the Treasury would likely have to lower its growth forecasts in October's medium-term budget policy statement.

His remarks come as South Africa's private sector slipped back into contraction in June after expanding for the first time in a year in May, as output fell and companies cut jobs, a survey showed on Tuesday.

The data, released minutes after another report pointed to waning consumer confidence, is the latest sign of sluggish growth in Africa's most industrialised country, which has recently dodged credit rating downgrades but analysts fear could still slip into "junk" status by year end.

The rand fell as much as 1.6% against the dollar on the poor data, while bonds also weakened.

The Standard Bank Purchasing Managers' Index (PMI), compiled by Markit, fell to 49.6 in June from 50.2 in May, falling below the 50 mark that separates growth from contraction.

"One of the main drags on the headline PMI in June came from an accelerated decline in output, which companies attributed to slow market conditions," Markit said in a statement.

treasury  |  lungisa fuzile  |  gdp


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