Oct. 27 (Bloomberg) -- South Africa’s economy will grow 1.5 percent next year as consumer spending recovers and the government maintains investment on roads, railways and power plants, the National Treasury forecast.

That follows a contraction of 1.9 percent estimated for this year, the Treasury said in its medium-term budget policy statement published in Cape Town today.

Africa’s biggest economy has been slow to recover from its first recession in 17 years after demand for commodities fell and manufacturing output slumped. Growth will average 2.5 percent over the next three years, the Treasury said, almost half the 4.5 percent expansion in the three years through 2008.

“The recovery in consumer spending and investment” will help support growth, Christopher Loewald, the Treasury’s deputy director general in charge of economic policy, said in an interview in Cape Town. “Public investment continues to grow strongly. We see an improvement in exports as well. But these are all quite moderate.”

The government’s growth forecast for next year may be lower than some analysts have predicted because it expects the global economy to remain sluggish next year, Lesetja Kganyago, the Treasury’s director general, told reporters in Cape Town today.

“We are not bullish on the world economy,” Kganyago said. “The world economy is not going to be a major source of demand for South African products.”

Tax Receipts

The recession has crimped tax receipts, pushing the budget deficit to 7.6 percent of gross domestic product in the year through March, the highest since records began in 1961. The shortfall will ease to 6.2 percent of GDP next year and 5 percent in the year after that, the Treasury said.

Consumer spending, which accounts for two-thirds of expenditure in the economy, will probably expand 0.9 percent in 2010 following a contraction of 3.1 percent this year, the Treasury said. Growth in gross fixed capital formation is forecast to accelerate to 4.4 percent from 3.5 percent over the same period.

The economic recovery and increased company investment will fuel demand for imports, widening the current account deficit to 5.7 percent of GDP next year from 4.9 percent in 2009, the Treasury said.

Exports are forecast to grow 3.8 percent in 2010 following a contraction of 19.8 percent this year, while imports are likely to expand 4.2 percent after falling 20.3 percent in 2009, it added.

The government will stick to its 3 percent to 6 percent target range for inflation, though it will discuss the issue with Reserve Bank Governor-designate Gill Marcus when she takes office on Nov. 9, Finance Minister Pravin Gordhan told reporters in Cape Town today.

Inflation will slow to an average of 6.3 percent next year from 7.1 percent this year, the Treasury forecast.

“At this stage we see no reason to change the inflation target,” Gordhan said. “We do want to signal however that the world over there is a fair amount of debate that we are monitoring. There are developments we need to take into account. When the new governor gets into place we will have conversations with her and other stakeholders.”

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net; Mike Cohen in Cape Town at mcohen21@bloomberg.net

Last Updated: October 27, 2009 08:02 EDT