S.African Economy Projected To Contract 1.9% This Year: Treasury

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The South African economy is likely to contract 1.9% this year, but showed signs of recovery, the National Treasury said in its medium-term budget policy statement Tuesday.

The country faced its first recession in 17 years due to the global crisis, reflecting lower demand for exports and commodity prices and also falling industrial and mining output. However, the Treasury expects the economy to grow 1.5% next year and reach a growth of 3.2% in 2012. Public sector investments is projected to show robust growth, but household consumption is likely to remain weak as households reduce their debts. Moreover, private-sector investment is likely to recover only in 2011, it said.

The consumer price inflation, which stood at 9.9% for the whole of 2008, is expected to decrease to 7.1% this year and further to 6.3% and 6% in 2010 and 2011 respectively. The current account deficit is projected to stand at 4.9% of GDP this year and rise to 5.7% next year and to 6.1% in 2011.

Over the medium term, the Treasury emphasized on a combination of fiscal and monetary policies to support recovery, while preventing the build up of unsustainable debt levels. Although South Africa had the fiscal space to run a significant debt, in the medium term the Treasury said a phased moderation of the borrowing requirement will be required.

(Market News Provided by RTTNews)