No escape for S. Africa: Recession and 250,000 job cuts

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South Africa’s president warned on Friday that the economy was being badly hit by the global slowdown and outlined plans to increase public investment and protect jobs.

By Richard Lapper in Cape Town

In his state of the nation address to parliament, Kgalema Motlanthe said the government’s “central and immediate task” was to fully appreciate the impact of international developments on the economy and the wider region.

His comments come amid signs that local policymakers are becoming alarmed about the effect of the US and European recessions on an economy heavily dependent on mining exports and capital inflows.

Many officials have previously argued that tight banking regulation and exchange controls meant South African banks were healthier than their global counterparts, immunising the economy to some extent from financial contagion.

No escape

“There is no longer the sense that South Africa has escaped,” said Jeff Gable, head of research at Absa bank. “This is particularly striking in the current political environment where no-one really wants to say anything bad.”

Mr Motlanthe will hand over to an elected successor at polls due to take place in the next few weeks.

He said falling demand for exports, narrower access to capital and lower demand had “precipitated a scaling down of production, the creation of jobs is negatively affected and in some sectors retrenchment has become a reality”.

One private sector forecaster has predicted that 250,000 jobs will be lost in South Africa this year.

Mr Motlanthe said R690bn ($71bn, €55bn, £48bn) would be invested in public investments, with funds coming possibly from local pension funds and development finance institutions, private sector partners and international multilateral agencies.

Exploring alternative ways

Alternative ways of avoiding job losses, including longer holidays, extended training, short-time work and job sharing were being explored.

The economy is still expected to grow this year although the government will downgrade its forecast of 3 per cent expansion. South Africa has grown at average annual rate of 5 per cent since 2005, but output slumped in the second half of last year.

During the third quarter the economy grew by only 0.2 per cent, the worst performance for a decade, and forecasters have predicted that output may well have contracted in the fourth quarter.

Earlier this week the central bank cut its benchmark interest rate by 1 percentage point, but Tito Mboweni, the bank’s governor, had sought to persuade the monetary policy committee members to cut rates by 2 percentage points.

Mr Motlanthe is set to announce the election date when he responds to the parliamentary debate over Friday’s address. Precise figures on public spending and revenues are expected next Wednesday when Trevor Manuel, the finance minister, announces his budget.

Financial Times

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