Pravin Gordhan says GDP is likely to be below current forecasts as a slowdown in the rest of the world hits exports.
The reserve bank surprisingly cut interest rates last Thursday, the first adjustment since late 2010, citing a weaker domestic and global outlook and trimming its own growth forecast to 2.7% – in line with the treasury – from 2.9%.
Recovery remains hesitant after Africa's biggest economy slid into a recession in 2009, its first since the end of apartheid, and this may throw up problems for President Jacob Zuma's bid for re-election as head of the ANC this year.
On Monday Gordhan said GDP was likely to be below current forecasts as a slowdown in the rest of the world hits exports from Africa's biggest economy.
"We don't know what the precise numbers are but certainly the current indications are that growth is likely to be below 2.7%," Gordhan said on the sidelines of a conference in Johannesburg.
The central bank said last week the risks to its GDP projection were on the downside if the economic stagnation in the eurozone, South Africa's biggest trading partner, intensified.
Expanded mandate
Gordhan welcomed the rate cut by the bank, which was given a slightly expanded mandate two years ago to take growth and unemployment into account when setting policy, in addition to an inflation target of 3%-6%.
"It was a very appropriate move and a most welcomed one. In 2010, part of the variation of the mandate of the reserve bank was a request that they take into account issues of employment and growth," he said.
Governor Gill Marcus won rare praise from labour unions for lowering rates although they complained it was "too little, too late".
The unions, a power ally of the ANC, have long called for looser monetary policy and a weaker currency to help create jobs in a country where official unemployment runs at 25%.
Some have even demanded the bank be nationalised to change its mandate from inflation-targeting to job creation.
"Clearly given the limitations in respect of fiscal policy options currently, the reserve bank has done the absolutely correct thing in line with central banks in many parts of the world," Gordhan said.
Negative impact
On Thursday, the central bank warned in its annual economic report about the negative impact of weak global growth particularly on the manufacturing sector which accounts for 15% of South Africa's GDP.
"The manufacturing sector remains susceptible to renewed weakness in the global economy, particularly in the euro area, through possible declines in exports," the bank said.
Europe is South Africa's biggest trading bloc and slowing exports to the region will further hurt manufacturers already decrying what they see as an overvalued rand currency.
The central bank also blamed subdued domestic growth on infrastructure bottlenecks.
South Africa plans to spend billions of dollars on infrastructure to try and reignite the economy and help create jobs. But analysts are sceptical about the outcome, saying the government has dragged its feet on previous projects and that in any case it would take time for spending to impact on growth.
"Infrastructure bottlenecks is what has hurt the progress of the economy," Stanlib economist Kevin Lings said, warning growth in 2012 could be as low as 2.5% as a result.
"We only see a noticeable improvement in 2014 where we think we'll be able to see much more evidence of the infrastructure spend." – Reuters