The global economy grew by an average of 5 per cent from 2003 to 2007. It was a
period of robust expansion but also of widening international imbalances. Now there are
storm clouds ahead.
In North America, severe turbulence in the housing market will continue to rock credit
markets around the world and lower the near-term prospects for growth in the world’s
largest economy. The losses due to bad lending practices in America’s housing markets
appear to be worse than we thought – estimates now reflect a combined loss of
These disruptions have travelled across the global landscape rapidly. Finance capital
knows no boundaries and globalisation’s trade currents reach every corner of the world.
Higher oil prices are lowering growth prospects in Europe and Japan and raising the
inflation outlook everywhere.
China’s economy, in contrast, continues to expand rapidly, growing by 10 per cent in
2007 and an expected 9.5 per cent in 2008, driven by booming exports and an
investment to GDP ratio of 45 per cent.
Yet even these regions with their high savings and investment rates will experience
some moderation as a result of weaker demand for their exports, and internationalinvestors’ aversion to warm climates will slow growth in other emerging market
China’s expansion and global growth have impacted on the prices of all major
commodities, including oil. Some of this is good news – higher prices benefit mineralrich
economies – but rising food and fuel prices, cause discomfort and hardship.
Prospects for the South African economy
For the time being the cross-currents of commodity prices remain supportive of
economic growth in many parts of Africa, for South Africa and in Australia. But there are
signs of uncertainty: since the beginning of the year for example, R24 billion in foreign
holdings of rand-denominated bonds and equities has been sold. Inflation and our own
lack of savings increase our vulnerability to financial turbulence.
Our economy’s longer term outlook, however, remains favourable. Key policy anchors
are in place to provide a solid mooring while enabling the economy to adapt to the
cross-currents. The prudent fiscal stance, international reserves of US$33.6 billion, the
inflation targeting regime and a floating exchange rate cushion us against shocks and
reduce pressure on interest rates.
We took these decisions early and we implemented them when times were good. We
took them in the face of some severe criticism, even in this House. It is precisely
because of the macroeconomic policies put in place since 1996 and the fiscal stance in
operation that we can be confident that we will weather this storm. We have seen
investment as a share of GDP rise from about 15 per cent to 21 per cent. Our sound
footing will enable us to grow at a faster pace, and generate the resources to broaden
participation and improve the lives of all South Africans progressively and sustainably.
Madam Speaker, the South African economy has expanded continuously since
September 1999. Its pace of growth slowed slightly in 2001 and 2002, and since 2003
we have grown by an average of 5 per cent a year. This is the longest continuous period of growth on record. GDP per person has increased by over 20 per cent since
2000. During the past five years, employment has increased at a faster pace than at
any point in the past twenty years, adding over 1.5 million jobs.
As we present a picture of where we are now, we must also tell South Africans and the
world that our ship is stronger and we are better prepared than during previous
episodes of global turmoil. It is time for neither gloom nor panic.