IMF trims SA's 2010 GDP forecast

| Wednesday December 8, 2010 00:00

'Our forecast six months ago was about 3 percent, with quarter three (third quarter) numbers coming in lower than we expected. I think some downside is possible with growth (now seen at) around 2,9 percent to 2,8 percent, a sliver below the 3%,' he told Reuters in an interview.

South Africa's economy grew by a lower-than expected 2,6% in the third quarter, from a downwardly revised 2,8 percent in the second quarter.

The IMF's forecast is in line with that of the South African Reserve Bank, which expects growth of 2,8 percent. The National Treasury expects the economy to grow by 3 percent this year.

Selassie said the IMF saw GDP growth accelerating to 3,5% next year but the biggest economy in Africa needed a growth rate of some 6% to make serious inroads into a stubbornly high unemployment rate.

Almost a million jobs have disappeared since the beginning of last year, when South Africa experienced its first recession in 17 years. About one quarter of the labour force is jobless.

Selassie said South Africa had responded 'adequately' to increased capital inflows that have helped strengthen the rand.

'(Capital inflows are) certainly posing some challenges, as it is in many other emerging market countries ... I think the policy response has been relatively adequate,' he said.

The rand has gained over 27,5 percent against the dollar since the beginning of last year, partly as international investors buy South African assets, especially bonds in search of higher yields.

At 5,5%, South Africa's benchmark repo rate is much more attractive than those in developed nations, even after 650 basis points worth of reductions since December 2008.

Unlike other emerging economies such as Brazil, South Africa has rejected the idea of introducing a tax on capital inflows, to discourage them and stem the rand's gains.

The government and the central bank have opted for accumulating reserves as and when appropriate.-(Reuters)