South Africa must stick to counter-cyclical macroeconomic policies that maintain low and stable inflation to help ensure sustainable growth, Finance Minister Pravin Gordhan said on Friday.
He said in written reply to a parliamentary question that South Africa could learn from the experiences of other countries, such as Australia and South Korea, where prices and wages reacted quickly to lower demand due to the global crisis.
Africa’s biggest economy followed most countries into recession in 2009 when falling demand for particularly mining and manufactured goods led to almost one million jobs being lost. It emerged from the slump in the third quarter of 2009.
Despite the weak demand, politically influential trade unions managed to secure above-inflation wage increases, while prices of goods remained high through the downturn.
Labour federation Congress of South African Trade Unions (Cosatu), allied to the ruling African National Congress (ANC), has demanded that the government shift away from conservative economic policies, particular relatively tight monetary policy, that it says led to the job losses.
But Gordhan said a macroeconomic framework that supported low inflation and robust investment was crucial, as were labour markets that were more competitive and efficient.
”Macroeconomic policies that are counter-cyclical and maintain a low and stable rate of inflation will remain vital to support sustainable growth,” he said, adding the impact of the crisis had been exascerbated by large imbalances, high household debt and inflation.
Gordhan said there were a range of policies that could help the economy become more labour-absorbing and resilient to future recessions.
”Along with a focus on the delivery of better quality public services in education, health and crime prevention, there must also be renewed emphasis on microeconomic reforms to enhance competitiveness and the ability of firms and workers to adjust to economic adversity,” he said.
”This will include improving competition through a proactive competition policy, effective regulation, reducing the cost of doing business, investing in infrastructure to remove bottlenecks, and ensuring that real wage increases match productivity growth.”
Gordhan’s comments are in contrast to demand from Cosatu and other more left leaning politicians that want fiscal policy to stay loose and sharp cuts in interest rates to spur growth.
They also want targets that mandate the central bank to keep inflation between 3% and 6% scrapped, and have succeeded in encouraging the ruling ANC and government into a debate on policy. — Reuters