Fear over Mideast upheaval

2012-02-24 00:00

THE Middle East is the “joker in the pack” that could turn the growth prospects of the global and local economies upside down, with significant consequences for the pockets of local consumers.

This was the warning from the chief economist of FNB, Dr Cees Bruggemans, who told guests at an FNB/Witness post-budget presentation in Pietermaritzburg yesterday that major upheaval in the Middle East could have a devastating effect on global crude oil prices, fuel prices and consumer inflation.

While financial markets across the globe continue to focus their attention on Europe’s debt crises, Bruggemans warned that the Middle East was the “elephant in the room”.

In the absence of such an upheaval the world and South Africa would coast along at a modest to robust growth rate in 2012.

Bruggemans said he believed that Finance Minister Pravin Gordhan’s projected gross domestic product (GDP) growth figure of 2,7% for 2012 was modest.

“A growth rate of 2,7% is a little low,” said Bruggemans.

A narrowing of the gap between spending and revenue collection was a key highlight of the budget, he added, particularly in light of murmurings by credit rating agencies in recent months of a possible downgrade.

Such a move would ultimately result in a higher cost of borrowing for South Africa.

However, Bruggemans said, investors were pleasantly surprised by the sizeable deficit reduction.

He and other analysts welcomed Gordhan’s statement that the budget deficit was expected to come in at 4,6% of GDP in 2012/13 and three percent in 2014/15, and that public debt was expected to stabilise at 38% of GDP in 2014/15. This compared favourably with the U.S. and major developed economies in Europe. Some of these economies are saddled with debt of more than 100% of GDP.

Bruggemans praised Gordhan for delivering a well-balanced budget that adequately addressed the spending, debt-reduction and infrastructure priorities.

But he warned that the infrastructure spending spree emphasised in the state of the nation speech and the budget was unlikely to materialise in the short term, judging by the fairly modest borrowing requirements and fixed investment assumptions made in the budget.

“The application of the infrastructure spending lies a little further out in the future compared to what we expect. It’s a long agenda. We hope it will start earlier rather than later, but at the same time I suspect the minister does not want to frighten the markets too much right now.”

While the construction industry may have to wait for the money to be spent, KwaZulu-Natal-based economist Graham Muller told The Witness that the province was poised to benefit from the government’s fixed investment plans.

Muller said: “A large proportion of the forthcoming logistics infrastructure spending will take place in KwaZulu-Natal.

“This includes increasing the capacity of road and rail infrastructure along the Durban-Gauteng corridor as well as on the coal railway between Limpopo and Richards Bay. At the coastal end huge spending is budgeted in the Port of Richards Bay and in the Port of Durban.

“This will lift the construction industry in KwaZulu-Natal out of the current doldrums.”

• kavith@witness.co.za

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