South African businesses have grown more worried about the direction of economic policy and the impact of above-inflation pay rises, but the imminent Soccer World Cup is still seen providing a near-term boost to the economy.
Finance Minister Pravin Gordhan was also quoted as saying South Africa’s fiscal position was in better shape than those of its trading partners, as the global economy slowly recovers from recession.
The South African Chamber of Commerce and Industry (SACCI) said its confidence index (BCI) dipped to 82 points in May from 84,2 as businesses fretted that recent strikes, threats of future labour unrest and global financial uncertainty may undermine growth prospects.
The Congress of South African Trade Unions, a powerful ally of the African National Congress, has said it may strike during the World Cup South Africa hosts this month, over sharp power price hikes if authorities do not lower tariffs.
Cosatu’s long-standing demands that President Jacob Zuma’s government adopts a more populist economic policy stance have already spooked investors.
“SACCI is concerned that under difficult economic circumstances South Africa is still dogged by debate on the economic model that is appropriate for the country and a spate of labour demands for wage rates well in excess of inflation,” SACCI said in a statement.
“The latter developments will prolong the path to recovery and negatively impact growth and job creation prospects.”
While the World Cup should offer a boost, “it is nonetheless essential that all economic stakeholders realise the critical nature of positive contributions and responsible behaviour in the current fragile economic environment”, it said.
South African logistics group Transnet reached a deal with striking workers last week to end a long-running dispute, after agreeing to increase wages by around double the inflation rate, currently at 4,8%.
Reuters poll sees Cup boost
Expectations of a boost from the World Cup however helped lift confidence to a year-high in the latest Reuters Econometer released on Thursday, with the index of six weighted indicators rising to 254,28 in May from 244,04 in April.
The consensus of the 24 economists polled from May 24 to June 1 was for South Africa’s GDP to grow by an average 3,13% in 2010, rising to 3,55% and 3,84% in 2011 and 2012 respectively.
“We built in the spending from the World Cup, that’s why I am thinking the second quarter will be better …,” said Ronel Oberholzer, senior economist at IHS-Global Insight.
Last month Gordhan told Reuters Insider economic growth may be higher than the Treasury’s forecasts of 2,3% expansion for 2010, with the World Cup making a direct contribution of 0,6 percentage points.
On Thursday the weekly business magazine Financial Mail quoted Gordhan as saying he was confident South Africa was in a better fiscal position than many other countries.
The budget deficit in Africa’s biggest economy stood at 6,7% in the 2009-10 fiscal year which ended on March 31, much lower than the 7,3% the government had forecast, and the government has said it has a plan to narrow the shortfall to about 4,1% of GDP by 2012/13.
But Gordhan told the Financial Mail that while South Africa had “done well” in shortening its recession, employment creation still lagged.
“Like the rest of the world we have a serious casualty in terms of jobs, and it will take time to re-absorb people back into the economy,” he said. – Reuters