South African Export Slump Curbs Economic Growth

South Africa lowered its forecasts for economic growth in the next three years as exports underperform, widening the current account deficit.

Gross domestic product will expand 2.7 percent this year, less than the 3 percent estimated in October, Finance Minister Pravin Gordhan said in his budget speech in Cape Town today. Growth is set to accelerate to 3.5 percent next year and 3.8 percent in 2015, lower than previous estimates of 3.8 percent and 4.1 percent, respectively.

A slump in demand from Europe, which buys about a fifth of South African exports, and strikes at gold and platinum mines curbed growth in Africa’s biggest economy to 2.5 percent last year, the slowest pace since a 2009 recession. That’s less than half the 7 percent pace the government says is needed to meet a pledge to cut the jobless rate to 14 percent by 2020 from 25 percent currently.

The deficit on the current account, the broadest measure in trade in goods and services, widened last year as exports fell, undermining the rand. The gap will average 6.2 percent of gross domestic product in the next three years, higher than the previous estimate of 5.6 percent, the Treasury said.

Inflation will average 5.6 percent this year and 5.5 percent in 2014, up from previous estimates of 5.5 percent and 5.1 percent, according to the Treasury. The Reserve Bank has kept the benchmark repurchase rate at 5 percent since July as inflation remained near the top of its 3 percent to 6 percent target.

Growth in consumer spending, which accounts for about 60 percent of total expenditure, will slow to 3.1 percent this year from 3.4 percent in 2012, the Treasury said.

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