Global economy casts a shadow over SA, says Gordhan

The uncertainties in the global economy remain a risk to South Africa’s prospects and the country needs to increase its competitiveness in order to compete with its counterparts in the Brics group, said Finance Minister Pravin Gordhan on Thursday.

“The global economy is going through an uncertain time and extremely risky period,” he told a business event.

“The clouds of instability in European banks, the sovereign debt crisis and the weakening prospects cast a long shadow across the globe and this includes a shadow over the South African economy.”

South Africa’s economic growth slowed sharply in the second quarter to 1.3% from 4.5% in the first quarter.

Gordhan said on Tuesday although the second quarter GDP growth numbers were disappointing — he was still hopeful the economy would grow by over 3% this year, from last year’s 2.8%.

‘Extreme crisis’
In case of “extreme crisis”, the government would use foreign exchange reserves, which are currently above $50-billion.

Gordhan said South Africa’s business cycle was closely linked with the developed world and a slowdown there would impact the country.

South Africa exited its first recession in almost two decades in the third quarter of 2009 but continued to shed jobs. The government has said the economy needs to grow by 7% a year on a sustained basis to decrease the unemployment rate, which is currently at over 25% of the labour force.

The Reserve Bank has left the repo rate steady at 5.5% this year, after reducing it by 650 basis points in the two years to the end of 2010.

Governor Gill Marcus said last week the bank would “act appropriately” if there was a sustained slowdown in the global economy, comments that fuelled expectations that rates could fall again.

Gordhan said the inclusion of South Africa in the Brics — a group of emerging economies set to the engine of growth over the next few years — was not enough.

“It’s a club that practises the art of completion” he said, adding the biggest economy needed to raise its competitiveness.

The country could play in the same league if it increased its exports and raise investment spending. — Reuters

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