Treasury official sees 2% growth amid strikes, slowdown

GROWTH in SA’s economy will slow to nearly 2% this year, Nomfundo Tshazibana, the deputy director-general of economic policy at the Treasury said last night.

Her estimate is well below the Treasury’s February budget estimate of growth of 2.7% this year, and the Reserve Bank’s prediction last week of 2.4%, little changed from 2.5% last year. “Growth will be closer to 2% in light of what’s happening globally and dynamics around the mining sector, and of course there is the element around the electricity constraint,” she said.

Ms Tshazibana was speaking after a panel discussion on the economy at the Gordon Institute of Business Science.

The Treasury’s reduced estimate comes amid other conflicting assessments of SA’s economic outlook yesterday, based largely on contrasting views on the performance of exports.

The World Bank cut its growth estimate for SA and cited the severity of both external and domestic risks, particularly the potential for worsening labour market unrest.

SA’s economy was likely to grow at 2.5% this year, 3.2% next year and 3.3% in 2015, compared with estimates in July last year of 3.2% this year and 3.5% next year, it said in a report on the country.

The new estimates are largely in line with market consensus predictions, although some economists now expect the economy to battle to grow much faster than 2% this year, after news that it expanded by just 0.9% in the first quarter. But the Organisation for

Economic Co-operation and Development (OECD) predicts the economy will expand by 2.8% this year and 4.3% next year — well above the Reserve Bank’s latest projections of 2.4% and 3.5%. “Faster growth is expected on the back of a weaker rand and a pick-up in world trade. As accelerating exports feed into the economy, growth should become stronger and reach potential towards the end of 2014,” the Parisbased think-tank said.

In contrast, the World Bank highlighted the risks from abroad, saying growth in demand for some of SA’s industrial metals will probably slow. SA’s terms of trade fell nearly 6% last year and would keep declining over the medium term on softening precious metal prices, the bank said.

Despite its upbeat assessment, the OECD said there was scope for a further interest rate cut, as “substantial slack” in the economy would keep underlying inflation pressure low. The OECD glossed over labour unrest in mining, saying only that “substantial labour market slack” should ensure there is no general increase in wage pressures. But the World Bank said labour relations could have lasting effects on labour market dynamics and investor confidence.