Gordhan: Recovery holds opportunites

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2014 South Africa Budget Speech~1.JPG AP South African Minister of Finance Pravin Gordhan delivers the yearly South African budget speech in Parliament, Cape Town, South Africa, Wednesday, February 26, 2014. (AP Photo/Schalk van Zuydam)

Johannesburg - As global economic growth recovers there will be opportunities and risks for South Africa's economy, Finance Minister Pravin Gordhan said on Wednesday.

“These developments have the potential to increase our exports,” he told the National Assembly in his 2014 Budget speech.

The global economic outlook remained unsteady -- some advanced economies had returned to growth, while others continued to lag.

The slowdown in quantitative easing by the US Federal Reserve had caused further uncertainty to financial markets, currency volatility and capital outflows from emerging markets.

“South Africa's economy has continued to grow, but more slowly than projected a year ago. We expect growth of 2.7 percent this year.

“A weaker exchange rate is a risk to the inflation outlook, but it supports exporters. Sustained improvements in competitiveness require further investment in infrastructure and a range of micro-economic reforms,” he said.

Among South Africa's emerging market partners, growth remained strong, but demand for mineral products had moderated and was unlikely to pick up soon.

“The prices of our largest sources of foreign earnings remain depressed.”

However, the rand remained an effective shock absorber against global volatility. Recent movements of the currency had been supportive of export growth, while reducing the country's reliance on capital inflows.

“We must ensure that our fiscal and monetary choices keep inflation low and maintain the recent gains in competitiveness.

“While we have made significant progress in accumulating reserves, there is scope for further improvement. This will support the stability of the currency,” Gordhan said.

Growth was projected to increase from 2.7 percent this year, to 3.5 percent in 2016. Investment was forecast to increase by about five percent a year, and the current account deficit would average 5.8 percent of GDP over the medium-term, while consumer price inflation would return to levels within the target band (three to six percent) between 2015 and 2016.

Potential domestic risks to the outlook included further delays to the introduction of new infrastructure, particularly additional electricity capacity; higher inflation due to the weakness of the rand; and, protracted labour disputes, which could depress consumer and business confidence, he said. - Sapa


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