The global outlook has deteriorated in recent months, according to South Africa’s cabinet. A statement was released today following the cabinet meeting yesterday where the discussion centred on the state of the economy and budget related matters.
Cabinet noted a number of factors impacting on the economy of the country.
“Slower global growth reflects, in particular, weaker performance and higher risks in several important developing countries, including China.
“The welcomed recovery expected in the USA is likely to result in rising global interest rates. Depressed trade volumes and turbulence in global capital markets underscore the need for nations to build resilience and act cautiously in the period ahead.”
Cabinet further noted that there were some benefits from the low price of crude oil but as a major commodity exporter, “South Africa is concerned about the continued weakness in commodity prices.”
Government continued to build on the country’s diverse economic structure, and export earnings continued to depend to a great extent on metals and semi processed raw materials.
“The fall in commodity prices is unlikely to reverse speedily. This will have sustained consequences for the South African economy and many of our partners on the African continent.”
Turning to the local currency, cabinet remarked that the depreciation of the rand over the last few years “offers much better prospects for export growth and, combined with a lower global oil price, has helped to relieve pressure on the current account.”
But, cabinet added, weaker growth in South Africa’s major trading partners has meant subdued demand for South African products abroad.
“The global environment is regarded as particularly challenging for emerging markets, with lower commodity prices and tightening of monetary policy in the USA putting pressure on capital flows and growth expectations. This has translated into significant volatility in capital markets.”
The rand – which is amongst the most traded emerging market currencies – has been particularly hard-hit in recent weeks.
“In this difficult global context, in which all economies face difficult challenges, Cabinet reaffirmed the need for government to intervene strategically and more decisively to restore the momentum of economic growth.
“The National Development Plan provides for these interventions. Government will reach out to social partners, particularly business and organised labour, to build consensus on the collective actions required to stabilise the economy, build confidence, raise the level of investment and return South Africa to a path of inclusive economic growth. The State of the Nation Address on 11 February will take account of this work.”
Cabinet added that it had endorsed stronger measures to restore a sustainable fiscal path, “taking account of the weakened outlook for the global economy and its domestic consequences.”
“Finance Minister Pravin Gordhan will unveil the measures when he presents the national budget on 24 February 2016.”