Post-Budget: Economists happy with Manuel’s aggressive spending plans

2009-02-12 00:00

SOUTH AFRICA has been in a recession for the past six months and locals should expect the economy to recover in only nine to 12 months.

Speaking at a post-Budget presentation hosted by FNB in Pietermaritzburg, FNB chief economist Dr Cees Bruggemans said the first quarter of 2009 will be the most painful period for the domestic economy.

Unlike Finance Minister Trevor Manuel, Bruggemans believes that South African exports will only recover much later than household demand, as the international economy remains weak.

Bruggemans believes that South Africa will shed between 200 000 and 300 000 jobs in 2009.

Several sectors, including mining, manufacturing and retail, have felt the pinch of shrinking local and global demand.

Although the rand, which has weakened (to the U.S. dollar), has helped cushion the blow for exporters, sinking commodity prices have clearly hurt many South African firms.

Bruggemans is encouraged by Manuel’s aggressive infrastructure and social spending plans as this expenditure will provide a much-needed boost to the domestic economy.

Although the Treasury expects a budget deficit of 3,8% of GDP in 2009/10, Bruggemans believes the deficit will swell to more than four percent due to the government’s aggressive spending plans in the midst of softer tax revenues.

“Coming from a surplus of [about] one percent of GDP, the shift in the fiscal stance is huge. The fiscal support for the economy is huge and he [Manuel] is using his financial strength to do this — and good for him,” Bruggemans said.

Efficient Group economist Fanie Joubert believes that although the budget deficit is unavoidable, certain risky assumptions have been made.

“This [budget deficit] is done on the back of expectations that the international economy should start to recover by 2010, clearly a dangerous gamble to be taking currently,” Joubert noted.

Bruggemans said that although the Reserve Bank’s intention to aggressively lower interest rates will help consumers and the domestic economy, it is unclear whether there will be an abrupt halt to rate-cutting in the third quarter of 2009.

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