27 May 2009
While the latest gross domestic product (GDP) growth figures show that the South Africa is in recession – for the first time since 1992 – the National Treasury expects conditions to improve in the second half of the year.
Domestically, interest rates have come down by 350 basis points since last year as inflation starts to moderate, and this monetary easing is expected to help improve credit conditions, ease pressures on consumers and small businesses, and raise growth rates.
“Looking ahead, we expect another quarterly contraction for the second quarter, but this is expected to be smaller,” the National Treasury said in a statement this week. “Quarter-on-quarter figures are expected to show improvement and a stronger economy in the second half of 2009”.
It added, however, that the country was “unlikely to achieve the GDP growth rate for this year expected at the time [of the February Budget speech]”.
Strong fiscal positionThe Treasury said the country was in a strong fiscal position, which meant that it would be able to respond to the crisis without putting an undue burden on future generations.
“This underlying strength in the South African economy has meant that this slowdown is less severe than in many countries.”
The fiscal stimulus announced in the 2009 Budget, as well as the inflows of tourists for the 2009 Confederations Cup, and private and public investment ahead of the 2010 Fifa World Cup, are also expected to provide support economic activity in the medium term.
The Treasury said that while indicators of real economic activity were expected to remain weak in the coming months, tentative signs of improvement in the world economy suggested that the global contraction may have bottomed out.
“Commodity prices, capital inflows, and indicators of purchasing manager’s outlook in some key global economies have stabilised and even strengthened.”
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