February 17, 2010 / 12:13 PM / 8 years ago

S.Africa's economy to resume growth in 2010, jobs a challenge

CAPE TOWN (Reuters) - South Africa’s economy is expected to grow by 2.3 percent in 2010 after contracting 1.8 percent last year, but unemployment remains a critical challenge after recession slashed about 900,000 jobs, the National Treasury said on Wednesday.

In its 2010 budget review, the Treasury said South Africa needed policy adjustments to drive faster and more inclusive growth, create more jobs, and reduce poverty.

President Jacob Zuma’s ANC government is under increasing pressure from its key labour union and communist allies to increase spending to boost growth, create jobs and improve the lives of millions mired in poverty nearly 16 years after the advent of democracy.

The unions say the poor have borne the brunt of South Africa’s its first recession in 17 years last year, which resulted from depressed global and domestic demand and slashed around 900,000 jobs. Unemployment has increased to 24.3 percent from around 22 percent in 2007.

“The global storm has subsided, and the South African economy is on the path to recovery,” the Treasury said on Wednesday, forecasting growth of 3.2 percent for 2011 and 3.6 percent the year after.

This compares with the Treasury’s October forecast of a 1.9 percent contraction for 2009, and 1.5 percent growth for 2010. Higher growth drivers included a recovery in the global economy, higher commodity prices and sustained growth in government spending, although there were risks to the global outlook, including large budget deficits in developed states and asset price bubbles in Asia.

The capital investment programme of state-owned entities was also helping recovery, the Treasury said, while providing the country with infrastructure needed to host the 2010 FIFA World Cup, which was expected to contribute 0.5 percent to GDP.

The latest growth forecasts for Africa’s biggest economy are however a however a far cry from the 5 percent average growth recorded in the five years before the economic downturn ensued.

“To address South Africa’s structural poverty and unemployment, government intends to develop a comprehensive package of economic reforms … identifying the key elements of a new growth path to drive faster, more inclusive and job creating growth,” the Treasury said.

“The present policy trajectory will not get us onto a new growth path. Given that global growth is likely to remain weak for some time, a failure to make crucial policy adjustments now is likely to result in weak job growth, with persistently high unemployment for several years to come.”

Although more than 6 million job seekers had entered the labour market since the end of white minority rule in 1994, the economy had only created some 4 million jobs.

In his budget speech, Finance Minister Pravin Gordhan said the new growth path included a concerted effort to reduce joblessness among young people, reforms to the labour market, keeping inflation low and striving for a stable and competitive exchange rate.

The Treasury said South Africa’s current account deficit, which has weighed on the rand in the past, was expected to rise to 4.9 percent of GDP in 2010 from 4.3 percent in 2009, widening further to 5.8 percent by 2012.

The gap had however been more than adequately financed by foreign capital flows in 2009, as investors sought to place cash into higher-yielding emerging markets.

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