A large trade deficit is necessary if the South African economy is to grow sufficiently, an economist said on Wednesday.
”The trade deficit will be substantial as we import a lot of large capital items. We have to get used to a big trade deficit in South Africa,” Stanlib economist Kevin Lings told reporters in Johannesburg.
This would stem from the strong growth in fixed investment spending over the next three to five years, Lings said.
In 2004, President Thabo Mbeki set a goal of fixed investment of 25% of gross domestic product (GDP) by 2015.
Lings said this is an important goal because the level of investment determines the level of employment.
”At the moment, it is not high enough to generate growth and employment,” Lings said, adding that South Africa is unlikely to reach Mbeki’s goal in 10 years’ time.
”That’s a big task … but even 20% of GDP [in fixed investment] would transform the country entirely.”
Various large investment projects are already on the go.
Transnet has committed to invest R300-billion over the next three years in ports, freight, rolling stock, rail and fuel pipelines.
Eskom has said it will invest R56-billion over three years in power generation, transmission and distribution, Lings said.
”A lot of this will be imported and will negatively affect the trade balance.
”But if you are growing your economy, you have to run a large trade deficit.”
Lings also predicts interest rates will remain constant while the rate of growth in consumer spending will slow slightly in the next year.
”Consumer spending is just too high. It has got to slow down, but will do so at a reasonable rate.”
High consumer spending is partly a result of falling inflation while wages remain fairly high, he said.
Lings expected inflation to ”drift up” to 5,8% in 2005 and wage growth to be moderate.
Although inflation will rise, Lings said this will not cause upward pressure on interest rates.
”Interest rates are likely to remain unchanged for a long time, unless there is a crisis.
”If the rand goes back down to R5,80 [to the dollar] and inflation is under control, the South African Reserve Bank might even cut interest rates again,” Lings predicted. — Sapa