More economic pain to come

2009-05-26 23:04
Johannesburg - The National Treasury said on Tuesday that while the GDP figures released on Tuesday morning confirm that South Africa, along with much of the global economy, is in a recession - its first since 1992 - the economy is expected to improve in the final two quarters of this year.

"Looking ahead, we expect another quarterly contraction for the second quarter, but this is expected to be smaller," it stated.

Quarter on quarter figures are expected to show improvement and a stronger economy in the second half of 2009, the Treasury said.

But it added: "We are unlikely to achieve the GDP growth rate for this year expected at the time of the Budget."

Domestically, it said, interest rates have come down by 350 basis points since last year, as inflation has moderated from the highs of 2008. This monetary easing will help to improve credit conditions, ease pressures on consumers and small businesses, and raise growth rates.

"There is a lot going for South Africa. We are in a strong fiscal position which means that we are able to respond to this crisis without putting an undue burden on future generations. This underlying strength in the South African economy has meant that this slowdown is less severe than in many countries.

"The fiscal stimulus announced in the 2009 Budget has supported economic activity, especially in infrastructure, prolonging growth in the construction sector. The inflows of tourists for the Confederations Cup, and private and public investment ahead of the World Cup, are also expected to provide support to the local economy.

"These factors are expected to continue to support economic activity in the medium term.

"While indicators of real economic activity are expected to remain weak in coming months, some tentative signs of improvement in the world economy suggest that the global contraction may have bottomed-out.

"Commodity prices, capital inflows, and indicators of purchasing manager's outlook in some key global economies have stabilised and even strengthened," the Treasury said.

South Africa's real gross domestic product (GDP) at market prices on a quarter-on- quarter (q/q) seasonally adjusted annualised (saa) basis dropped by -6.4% in the first quarter of 2009 from -1.8% in the fourth quarter 2008 and ushers in the first recession in 17 years, Statistics South Africa (Stats SA) data showed on Tuesday.

Non-seasonally adjusted year-on-year (y/y) GDP in the first quarter was placed at -1.3% from 1.0%.

Growth was expected to have decreased by 3.9% on a quarter-on-quarter saa basis according to a consensus survey undertaken by I-Net Bridge.

The range of forecasts was from -0.7% to -5.2%. 

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