SA faces sharp cyclical downturn, says Treasury

South Africa faces a sharp downturn after a prolonged boom and is responding with counter-cyclical measures to boost growth, Treasury Director General Lesetja Kganyago said on Thursday.

But he said the government must manage its borrowing carefully to avoid overburdening the country with debt.

“As the global economy slows, so does South Africa,” Kganyago said at a Bureau for Economic Research conference in Johannesburg. “After a prolonged economic boom, South Africa faces a sharp cyclical downturn.”

Africa’s biggest economy is widely expected to have fallen into its first recession in nearly two decades in the first quarter, with manufacturing and mining hit hard by a global downturn.

While policy changes could not prevent a fall in short-term demand, counter-cyclical measures, such as fiscal and monetary stimulus, helped set the economy up for a faster recovery, he said.

South Africa’s economy expanded by an average 5% a year between 2003 and 2007, but is expected to contract in 2009, stung by deep recession in developed economies and weak household demand.

Plunging manufacturing output led to a 1,8% contraction in the fourth quarter of 2008, and output from the sector has dived further in the first three months of this year.

First quarter growth data is due out on May 26.

The government has responded by lifting spending and swinging the budget back into deficit—the Treasury forecasts a shortfall of 3,8% of GDP in 2009/10.—Reuters