We'll weather the storm: Manuel
Michael Appel
20 February 2008While much of the world is suffering from soaring oil prices amidst a global economic slowdown speeded by the sub-prime mortgage crisis in the United States, Finance Minister Trevor Manuel is confident that South Africa will weather the storm.
The country's fiscal stance, coupled with international reserves of US$33.6-billion, the Reserve Bank's inflation targeting regime and a floating exchange rate have cushioned South Africa against global instability, Manuel said on Wednesday.
Delivering his 2008/09 Budget speech in Parliament in Cape Town, Manuel said that the US housing market crash was worse than initially anticipated. "The losses due to bad lending practices in America's housing markets appear to be worse then we thought - estimates now reflect a combined loss of $400-billion," he said.
The minister added that higher oil prices were lowering growth prospects in Europe and Japan and raising the inflation outlook everywhere.
For the time being, however, the cross-currents of commodity prices remained supportive of economic growth in many parts of Africa, favouring mineral-rich economies.
At the same time, signs of uncertainty were evident in local markets, with R24-billion in foreign holdings of rand-denominated bonds and equities having recently been sold. Higher inflation, South Africa's lack of savings and, in particular, the country's widening current account deficit, also made the country more vulnerable to financial turbulence.
"We import far more than we export," Manuel said. "This gap, called the current account deficit, has widened to an estimated R143-billion a year.
"Part of this is because we are investing heavily in infrastructure expansion, we are importing machinery and capital goods, in addition to the imports of fuel and other goods."
At the same time, Manuel said, the value of South Africa's exports, although boosted by high commodity prices, remained insufficient to pay for the country's imports.
Challenges to increasing exports, he said, included skills shortages, transport capacity constraints, high telecommunication costs and tariffs that raised the price of imported intermediate and capital goods.
The 2008 Budget highlights gross domestic product (GDP) growth of 5% in 2007, with growth expected to average about 4.3% in 2008/09.
According to the National Treasury, consumer inflation will rise to 7.1% in 2008 before levelling out and dropping to about 4.9% in 2009.
Source: BuaNews
