MARIAM ISA, Cape Town | Tuesday
SOUTH African Finance Minister Trevor Manuel has painted a rosy picture for the economy, predicting a sharp pickup in growth and lower inflation, which he said would allow interest rates and taxes to fall once again.
”The underlying economy is strong. That is exceedingly important to understand,” Manuel said this week as he unveiled revisions to economic forecasts in parliament.
Manuel acknowledged that while inflation would rise more than expected this year because of steep oil price rises, it was still likely to fall back within its new target range of three to six percent by 2002.
”Prospects for a further easing of interest rates as inflation declines remain good,” Manuel said.
He mentioned that improved tax collection and a broader revenue base would provide scope for further substantial cuts in income taxes in the government’s budget for 2001.
As expected, the government revised its growth forecast for the economy in fiscal 2000/01 sharply down from estimates in its February budget, reflecting the impact of floods, sluggish demand, and overseas perceptions of regional instability.
Gross domestic product (GDP) would expand by just 2.6% this year, rather than the initially expected 3.6%, a Treasury statement said.
But it predicted that in 2001/02 GDP would accelerate to 3.7% versus a previous 3.2% forecast, slowing only slightly to 3.5% the following year and then 3.3% in 2003/04.
South African shares initially warmed to Manuel’s statement, although the benchmark All-Share index later gave up its gains to close flat on the day around 7,889.0.
Economists largely agreed with the forecasts, although some saw the growth estimates as a bit optimistic and were sceptical that inflation triggered by decade-high oil prices would subside enough in the near-term to allow interest rates to fall again.
The rand’s slide of more than 20% against the dollar this year is also ushering in imported price pressures.
”We still need something to get this economy going and I have a feeling we are going to go through a tightening cycle at the moment which will set us back a bit,” ABSA economist Chris Hart said.
Treasury Director Maria Ramos told reporters a key factor behind the stronger growth forecasts was a 3.7% real increase in government spending over each of the coming three years. – Reuters