South Africa GDP Fall May Hurt Deficit Cut Plan, Nene Says

South Africa’s slowing economic growth caused by a four-month mining strike may undermine the government’s plan to narrow the budget deficit, Finance Minister Nhlanhla Nene said.

“We are absolutely concerned about the growth rate,” Nene, who took office this week, said in an interview with Bloomberg Africa TV’s Eleni Giokos in Mozambique’s capital, Maputo, today. “It does affect consolidation plans in the sense that you would see perhaps revenue slowing down a bit.”

South Africa’s economy contracted in the first quarter for the first time since a 2009 recession as mining output plunged the most in almost half a century. More than 70,000 workers at Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin Plc. have been on strike over pay since Jan. 23.

“South Africa is clearly facing some issues,” Christine Lagarde, Managing Director of the International Monetary Fund, said in an interview in Maputo today. “It is hopefully going to continue the trend of reforms that it had adopted in order to ensure that growth comes back and that some of the rigidities of the South African economy can be alleviated. ”

Nene’s predecessor, Pravin Gordhan, pledged in his budget speech in February to narrow the deficit to 2.8 percent of GDP in three years’ time from 4 percent in the fiscal year that ended in March.

Recession Risk

The economy risks falling into recession, with Reserve Bank Deputy Governor Lesetja Kganyago saying yesterday it was a “possibility, given that we are already two months” into the quarter.

Nene, who was in Maputo to attend a conference hosted by the IMF, said he doesn’t think the economy is heading into recession.

“Hopefully we should level out and we will build from this base going forward,” he said. “We are confident that with the plans in place, we should be able to rebound.”

The Reserve Bank left its benchmark repurchase rate unchanged at 5.5 percent on May 22 as concerns about slow growth outweighed worries that inflation will continue to exceed the bank’s 3 percent to 6 percent target band.

While inflation accelerated to 6.1 percent in April, Nene said the central bank’s Governor Gill Marcus has “space to be able to allow it to breach the band.”

“We have flexible mandate for the Reserve Bank which is enshrined in constitution,” he said.

The rand rose for the first time in three days, gaining 0.2 percent against the dollar to trade at 10.4385 as of 4:27 p.m. in Johannesburg.

The government is seeking to resolve the labor dispute, convening a meeting with platinum producers and the main mineworkers’ labor union today to help find a comprimise.

“The mining industry has not been in operation now for close to five months,” Nene said. “That’s the first thing that needs to be resolved, but it’s not going to immediately resolve the problem of growth.”

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