Bank slashes SA’s outlook as exports slow

Franz Wild

The World Bank cut its forecast for economic growth in South Africa as the global slowdown and high unemployment in the country curbs demand for manufactured goods.

The lender said in a report yesterday that Africa’s largest economy would grow 2.5 percent this year, less than the 3.1 percent the World Bank estimated in November and the 2.7 percent the government predicted in February

Finance Minister Pravin Gordhan said this week that local economic growth this year was likely to miss the government’s current forecast of 2.7 percent as a slowdown in the rest of the world hit exports.

The World Bank said: “Manufacturing, the mainstay of growth in the first quarter, appears to be faltering.” It added: “Stagnant employment prospects and the negative effects of the global situation on consumer confidence, purchasing power and household wealth are likely to weigh on consumer purchasing decisions.”

The SA Reserve Bank on July 19 cut its key interest rate by half a percentage point to 5 percent, its first reduction in 20 months, to bolster the economy as Europe’s debt crisis damps demand for exports. South Africa’s jobless rate rose to 25.2 percent in the first quarter, the highest of 61 countries tracked by Bloomberg.

Manufacturing production rose an average 1.8 percent in the first five months of the year, compared with the same period a year earlier, data from Statistics SA show. The purchasing managers’ index has slipped 9.7 index points in the four months to June, dropping below the 50 mark that signals contraction in the industry, according to Kagiso Tiso Holdings.

Inflation pressures had eased as slower economic growth and lower commodity prices outweighed the effect of a weaker rand, the World Bank said.

The inflation rate fell to 5.5 percent in June, within the central bank’s 3 percent to 6 percent target range, while the rand had weakened 4.3 percent against the dollar this year.

“A deteriorating global economic outlook is also likely to constrain domestic consumer and business confidence, further dampening prices through lower external demand,” the institution said. – Bloomberg