Projected economic growth of 4.4% may be revised upwards

South African economy might be even doing way better than expected, said South Africa's financial minister Trevor Manuel.

Economic growth estimated to be 4.4 percent this year could be revised upwards once the full-year data had been incorporated into the accounts, Trevor Manuel said in his medium-term budget speech.

"Several supplementary indicators signal that a notable acceleration in growth is under way. These include broad measures of demand and spending in the economy, such as the increase in VAT receipts over the past two years, strong real growth in wholesale and retail trade, and the expansion in credit extension," the finance minister said.

The minister warned that higher oil prices and slower international growth might mean a dip in the growth rate next year and he expected inflation to rise to an average of 5.2 percent.

But the effect on the South African economy would be offset by buoyant prices for commodity exports, and the fact that a large share of South Africa's oil needs was met by domestic production of synthetic fuel.

A policy document said investment spending would continue to drive economic growth as productive capacity increased significantly, and government and public corporations embarked on programmes to increase and improve existing infrastructure. Private sector investment was expected to benefit from additional public sector spending and the low interest rate environment.

Real growth in expenditure to enhance and expand the government's social and economic programmes was supported by higher-than-forecast tax revenue this year and lower debt service costs. Substantial allocations were being made for investment in infrastructure for sustainable communities and economic development.

Growth in instalment sales and easing credit remained high and growth in mortgage advances surged to 28.1 percent in August 2005. Household consumption spending remained strong, rising by 6.3 percent in the first half of 2005.

The consumption of durable goods remained the fastest-growing category, with growth of about 20 percent in the first half of 2005. New vehicle sales were "exceptional, increasing by 27.4 percent in the first nine months of 2005".

The balance of payments remained healthy in the first half of 2005, with a surplus of 6.6 percent on the financial account due to capital inflows that offset the deficit of 3.6 percent of gross domestic product on the current account, the medium-term expenditure framework said.

Exports picked up in 2005 and it was expected that there would continue to be "progress as commodity prices remain relatively strong and profitability of a broader range of manufactured exports increases".

The current account deficit was expected to average 3.8 percent of gross domestic product over the forecast period, widening to 4.1 percent in 2008/09 as capital goods imports accelerated next to investment.

(Source: Business Report, October 26 2005)