South Africa: Slower expansion
This year’s economic slowdown is projected to continue, reflecting weaker consumption growth and worsening terms of trade. Real GDP growth is expected to fall to about 3% in 2009 before rebounding to above 4% in 2010, with the FIFA World Cup providing a fillip to activity. Inflation is expected to turn down, returning to the central bank’s target range in 2010, as a result of the monetary tightening over the past two years and falling food and energy prices. Current account deficits will remain large with lower export prices broadly offsetting weaker import volume growth.
The projected move back into budget deficits is not worrisome, but fiscal policy should more than claw back the cyclical easing over the medium term, in order to get to cyclically adjusted balance. Monetary policy should continue to focus on price stability, but with food and energy prices falling, some easing may be possible earlier than previously envisaged. Prospects for long-term growth and meeting official employment targets would be improved by strengthening product market competition, with lighter regulation and less costly compliance being high priorities.