7 December 2011
Business Unity South Africa (Busa) says it expects South Africa’s economy to grow by 3% in 2012.
Presenting Busa’s economic and business outlook for the country in 2012 this week, Busa deputy CEO Raymond Parsons said that, looking at the present evidence, a 3% Gross Domestic Product (GDP) trajectory though 2012 could be expected in a best-case scenario.
He said while this was positive growth, it was insufficient to meet South Africa’s socio-economic challenges, especially given the downside risk. “At this rate, it will take South Africa much longer to reach its job creation and other socio-economic targets.”
Implications for growth include volatility in the exchange rate and the country’s trade balance would persist for the time being. Busa said that, depending on developments abroad, the rand could weaken again if a sustainable, practical plan was not devised soon to resolve the Eurozone debt crisis.
Inflation within target range
Meanwhile, headline inflation was expected to continue hovering at the upper range of the Reserve Bank’s inflation target range. Core inflation remained well within the target range, with little sign of secondary inflation.
As such, Busa expects interest rates to be kept unchanged for the time being, probably well into 2012.
“A renewed recession in the global economy may even promote a further cut in rates in South Africa as recently suggested by the OECD [Organisation for Economic Co-operation and Development].
“There are whirlpools on both sides, not on one only. If a serious global recession does unfold, then South Africa’s growth rate could well fall below 3% next year,” Parsons said.
Busa said there should be no “tax shocks” when Finance Minister Pravin Gordhan tables the country’s Budget in February, given the vulnerability of the economic recovery and the uncertain global situation which would damage business confidence and harm growth potential.
“Aggressive taxation may defeat its own ends by diminishing the income to be taxed,” Busa cautioned.
Keeping state spending under control
It said that keeping state spending under control would continue to require a streamlining of government and what it delivers. “The general rule should be that government spending should boost growth and reduce poverty.”
Parsons added that President Jacob Zuma had recently warned that welfare payments could continue to grow out of proportion to tax revenues. “There remains a clear and urgent choice for South Africa which is reflected in both the New Growth Path (NGP) and National Development Plan (NDP) roadmaps,” said Parsons.
“Either strengthen public sector delivery, keeping government affordable and the tax burden reasonable or face a continued failure to ensure delivery, leading to rising costs, reductions in services and greater financing challenges.”
Busa said it wanted to turn many more South Africans into a nation of victors over adversity and deprivation rather than victims trapped on welfare dependency.
According to Busa’s impressions, corporate balance sheets were currently strong and clean. “It is necessary to underpin the role of business and investor confidence in order to promote economic recovery,” said Parsons.