Economic activity in Africa has benefited from the strength of the world economy, and there are indications the robust expansion has continued in the first half of 2006, making this the strongest and most consistent growth performance in the recent history of the continent, the South African Reserve Bank (SARB) said on Wednesday in its annual economic report for 2006.
“As may be expected, oil-exporting countries outpaced the rest,” the SARB added.
The SARB said that South Africa had recorded a real growth rate of almost 5% in 2005 — the strongest since 1984.
“However, whereas the growth spurt in 1984 was short-lived, being straddled by years of economic contraction, the economic expansion in 2005 formed part of a sustained and robust upswing which to date has been the longest in the South African business cycle history.”
Head of research of the SARB, Johan Van den Heever, added that South Africa had experienced approximately seven years of good expansion.
“As the saying goes — it’s been stronger for longer. This solid, sustained growth has been nice,” he said during the release of the results.
However, he added that growth in real domestic expenditure had outpaced that in real domestic production over the past 18 months, but said this was quite a natural occurrence in a growing economy.
Van den Heever reported a current account deficit for the first half of the year at 6,1% from 4% in the first half of 2005.
“A number of people found the 6,4% deficit recorded in the first quarter of this year quite surprising, [it is the highest ratio since 1982],” said Van den Heever.
“But it is quite natural with the higher growth. Capital goods imports needed sustainable growth, else we wouldn’t expand,” he said.
“The last time we had a 6% deficit was in 1982 and during the apartheid years we traditionally needed a surplus for political reasons,” he added.
“Currently, we are far more healthy,” said Van den Heever.
“Also keep in mind the 6% is not particularly high compared with other countries where a quarter of developed countries and a third of developing countries have deficits of 6% or more. So we’re not alone. The US, interestingly, also has a 6%+ deficit and has had one for some time,” added Van den Heever.
“We have also been able to readily finance this for some time and South Africa’s foreign debt remains on the low side,” he added.
He said that because the country did not have an exchange rate target, part of the adjustment mechanism meant the market handled things by effectively adjusting the deficit down.
“Perhaps we saw a little of that in May and June,” he concluded. – I-Net Bridge