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Send  Share  RSS  Twitter  20 Jul 2011

THE ECONOMY: Government Told to Spend More on Growth-Enabling Investments

 





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The latest market overview shows that the South African government as well as local and provincial governments should urgently shift focus to investing in future growth.

BoE Private Clients Economist Madalet Sessions says GDP data released in June show that government consumption expenditure increased by 9.5% during the first quarter of 2011, while gross fixed capital formation increased by only 3.1% on a seasonally adjusted and annualised rate.

“Expenditure by General Government on fixed capital formation during 2011Q1 declined by a further 0.6% and remains almost 20% below the peak reached in the final quarter of 2008.”

“Government continues to prioritise consumption expenditure at the expense of investment expenditure,” Sessions notes.

“These choices are worrying as they undermine the growth potential of the economy by transferring resources from the productive economy to unionised public sector workers. In addition, infrastructure backlogs constrain the economy’s ability to provide goods and services at low cost to consumers.”

The BoE Private Clients Domestic Overview for June shows that manufacturing production declined by a surprising 3.7%, far in excess of the anticipated decline of 0.6%, while in Rand terms, the JSE All Share Index declined by 2% in June 2011. Gold mining was the worst performer at negative 9.5%, with the media and household goods sectors also delivering disappointing performances at -5.2%.

On the positive side, the tech, hardware and equipment sector shined with gains of 15.4%, while the bond index closed 0.2% higher. The rand also performed well against other currencies. From a foreigner’s perspective, the rand’s appreciation against the dollar contributed 0.6% to total returns in dollars, while the rand gained 3.2% and 0.1% against the Pound and Euro respectively.

According to Mike Schüssler, economist and compiler of the monthly Provincial Barometer which analyses economic activity in the Western and Eastern Cape, Gauteng, KwaZulu-Natal and the Free State, South Africa may well be past its peak growth for the year.


“The continuing uncertainty over the health of the global economy, nationalisation and labour legislation has had a negative impact on local conditions,” he says.


“Despite having the lowest interest rates for decades, we are already witnessing a decline in the demand for durable goods and property.” he says.

Sessions goes further to state that fears about additional property taxes that may come into play under the proposed Property Rates Amendment Bill currently before Parliament could further impact on property demand.

“The main drivers of inflationary pressures continued to be rising food and fuel prices, and other high administered costs.

“We reiterate that a premature tightening in monetary policy will do little to contain inflation and will further impact negatively on economic growth, and therefore call on the Reserve Bank to maintain interest rates at current levels.”

 
 
 
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