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Budget: Gordhan cuts economic growth forecast for 2014

by , 26 February 2014

This afternoon, Finance Minister Pravin Gordhan presented his budget to parliament. As economists expected, Mr Gordhan cut economic growth forecasts for 2014/2015. But he left the following two year projections unchanged. The rand fell slightly after his address. Let's take a closer look at what the Finance Minister said about South Africa's economy in his budget…

As expected, in his budget address, Finance Minister Pravin Gordhan “revised downwards… [the Treasury’s] 2014 economic growth forecast,” reports BDLive. But Mr Gordhan says that “the outlook for the next two years is for stronger growth”.

Mr Gordhan expects stronger growth to come from “public investment in infrastructure, higher global demand and more investments in Africa,” adds BDLive.

The growth forecast was reduced to 2.7% for the year, notes IOL. That’s down from “an October estimate of 3%”.

But the forecasts for growth in “2015 and 2016 were unchanged at 3.2% and 3.5% respectively,” notes BDLive.

Mr Gordhan also said that “gross government debt will probably increase to 48.3% of gross domestic product in three years’ time,” reports Bloomberg. That’s higher than the current level of 45.8%.

Could another interest rate hike be on the cards next month?

An emerging market strategist with the Royal Bank of Scotland, Abbas Ameli-Renani, said that “the lower growth forecast… and tighter fiscals imply that more of the burden for growth stimulation will fall on the bank,” reports IOL. Mr Ameli-Renani added that “another rate hike in March” looks likely.

Mr Gordhan said that the financial crisis in 2008 hit South Africa hard, says Fin24. After the “economy contracted 1.5% in 2009,” the economy is recovering. But he stressed the importance of economic growth reaching a minimum of 5% “to make rapid progress in creating jobs and reducing poverty”.

By the end of the Budget address, the rand had weakened “0.9% to 10.8271 per dollar,” notes Bloomberg. That’s after it rallied “as much as 0.4% earlier” today.

So, as economists expected, the budget revealed a slight cut in the forecast for growth this year.

Budget: Gordhan cuts economic growth forecast for 2014
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