11 February 2009
Protecting the poor and sustaining job creation were two of five guiding principles that formed the basis of Finance Minister Trevor Manuel’s latest Budget speech.
Delivering his Budget speech to Parliament in Cape Town on Wednesday, Manuel said that, in a time of global economic turmoil, the government had been guided by five enduring principles in drawing up South Africa’s national Budget for 2009/10.
These were: protecting the poor; sustaining jobs growth and expanding training opportunities; building economic capacity and promoting investment; addressing the “barriers to competitiveness that limit equitable sharing of opportunities”; and maintaining a sustainable debt level “so that our actions do not constrain our development tomorrow”.
‘GDP growth of 1.2% in 2009’
According to the National Treasury, South Africa’s incomes and outputs slowed sharply in the second half of 2008, with gross domestic product (GDP) growth averaging about 3.1 percent in 2008.
With the slowdown in international demand for South Africa’s exports, including the commodities that form the bedrock of the country’s economy, as well as reduced consumer spending and high interest rates, GDP growth is expected to average 1.2 percent for 2009, recovering to 4 percent by 2011.
“We expect output growth to improve in 2010, supported by public infrastructure spending, lower interest rates, the 2010 Fifa World Cup and a recovery in the world economy,” Manuel said.
Trading conditions ‘tough’
However, he warned that trading conditions were tough and “likely to deteriorate further in the short term.”
2008 was a year of economic shocks for South African producers, with increasing electricity tariffs, rising input costs, high interest rates and slowing demand for goods among consumers.
The mining sector was one of the worst affected by the slowdown in demand in 2008, as evidenced by Monday’s announcement by one of South Africa’s biggest mining houses, Anglo Platinum, that it planned to cut 10 000 jobs in 2009.
Manuel said the manufacturing, retail trade and residential construction sectors had also been badly hit by the global slowdown, and had already begun laying off workers, with the pace of job losses set to increase.
Inflationary pressures ease
Inflation in South Africa has over the past two years been fuelled by rapid increases in food and oil prices, domestic capacity constraints and a weaker local currency, as well as rising electricity tariffs.
The consumer inflation averaged 11.3 percent in 2008, spurred by an inflationary cycle which began in June 2006.
Despite this, the National Treasury expects inflation to return to within the South African Reserve Bank’s inflation target band of 3-6 percent by the first half of 2009.
In response to an improving inflation outlook and an easing of inflationary pressures such as oil prices, the central bank cut South Africa’s interest rates by a cumulative 1.5 percent between December 2008 and February 2009.