THE economy will grow faster than anticipated over the coming three years, while inflation will be somewhat lower, the Treasury said yesterday.

In its budget for this year, the Treasury revised its growth forecast higher to 2,3%, compared with 1,5% at its medium-term budget in October.

Output contracted 1,8% last year, marking SA’s first recession in 17 years.

It is expected to rebound by 3,2% next year and 3,6% the year after that, compared with earlier official estimates of 2,7% and 3,2% respectively.

“Things are looking better,” Finance Minister Pravin Gordhan said yesterday.

Gordhan said that household consumption spending, the economy’s main growth engine, was set to pick up this year, with improved confidence and lower debt levels.

A recovery in the global economy, higher commodity prices and sustained growth in government spending would be the main drivers of the country’s economic recovery.

“These are significant improvements in the economic outlook, but not yet enough to address our challenges of jobs, growth and poverty reduction,” Gordhan said.

In its budget review, the Treasury pointed out that there were “significant risks” to the global outlook, stemming from large budget deficits in developed countries, as well as asset price bubbles in Asia.

The local economy was set to recover gradually, driven by investment growth, more stable inventories and government consumption.

Spending generated by the Soccer World Cup to be held in June would account for half a percentage point of gross domestic product (GDP) growth this year, the Treasury said.

Many analysts have been reluctant to estimate the effect the event will have on the economy.

Household spending fell 3,5% last year — its first contraction since 1992.
The Treasury expects that it will grow again this year, albeit by just 0,9%.
Next year consumer spending is expected to rise 2,6%, quickening to 2,9% in 2012.

But investment, the economy’s other main growth engine, would accelerate more strongly.

It is expected to rise 5,8% this year after a 4% increase last year, quickening to 7,8% next year and 8,7% the year after.

Despite upward pressure from pending electricity price hikes, inflation is expected to subside to an average 5,8% this year — within its official 3%- 6% target range.


The annual rise in the consumer price index will quicken to 6,1% next year before moderating to 5,9% the following year, the Treasury said.

Treasury d eputy d irector- g eneral Andrew Donaldson said that the forecasts assumed Eskom would be granted its request for tariff hikes of 35% over each of the coming three years.

If the tariffs were lower than that, then there was a “positive risk” that inflation would be lower than forecast, Donaldson told Business Day.

The National Energy Regulator of SA is due to make a decision on Eskom’s request later this month.

The deficit on SA’s current account, seen as the economy’s Achilles heel, is also expected to improve. The Treasury estimated that it narrowed to 4,3% last year from 7,1% the previous year.

Rising domestic demand would push it up to 4,9% this year, 5,3% next year and 5,8% the following year.

These forecasts for the shortfall on SA’s broadest measure of trade in goods and services are all slightly better than the Treasury’s estimates late last year.

“Exports will benefit from stronger global demand and high commodity prices, largely as a result of growth in China and India,” the Treasury said.

“But the appreciation of the exchange rate, driven by a resumption of capital flows to emerging markets, has reduced competitiveness somewhat.”


PUBLISHED BY TONI ENDERLI