South African Finance Minister Trevor Manuel said on Tuesday that South Africa’s economy was on track to reach the 4,4% growth forecast in 2006 as set out in the Medium Term Budget Policy Statement, but at the same time he pointed to a few dark clouds on the horizon that needed to be kept in check.
“The present economic environment is extremely buoyant. What started off as a consumer boom has been translated into rising investment. Rising investment has led to employment growth, further contributing to rising consumption. We are capable of accelerating growth even further. Our key economic policy objective is to sustain the present pace of growth, but also to broaden the scope of beneficiaries.
“However, even as we grow, new challenges emerge. We must do more to understand these challenges and work together to address them,” Manuel said during a speech to labour unionists.
Manuel also pointed out that the management of the economy since 1994 was the major factor behind the success story the country was now experiencing.
“The economy has experienced structural change on a massive scale and we are now seeing the benefits of those reforms. The international economic environment has also been supportive of growth through high commodity prices and substantial inflows of foreign capital,” he stated.
However, Manuel highlighted low household savings and the current account deficit as potential blotches on the positive picture if they were not reigned in.
“There are two areas that give rise to concern. The first is that despite rising earnings, household savings continues to lag. National savings have fallen to as low as 13% of GDP. This has two effects. The first is that we have to finance some of our investments through foreign capital inflows. So far, capital has flown in at a rapid pace, allowing us to finance our current account deficit and build up reserves. Will the international environment be as supportive forever?” Manuel asked.
“The second blotch on the horizon is that a significant portion of our imports comprise of consumer goods. Going forward, we must improve the quality of this current account deficit towards investment goods.
“Higher interest rates, faster public sector infrastructure spending, the moderately weaker currency and improved performance of our exporters should allow for a slight easing of the current account deficit. However, if we do not improve our export performance, our economic performance would not be sustainable, requiring a forced slowdown in growth to rebalance the economy. No one wants this,” Manuel emphasised.
Manuel also said that while strong global growth was supportive of faster growth in SA, there were “a few more flashing amber lights than a year ago”.
“Global financial imbalances in the form of high current account deficits in the US, large trade surpluses in China and in oil exporting countries and rising inflation globally all pose a threat to the present pace of global growth,” Manuel concluded. ‒ I-Net Bridge