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Country analysis > South Africa Last update: 2020-11-27  

South Africa: Budget speech 2008/09

Minister of Finance, Trevor A Manuel

20 February 2008

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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 US$400 billion.

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 economies.

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.

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