October 23, 2013 / 12:06 PM / 4 years ago

South Africa slashes 2013 GDP growth forecast to 2.1 pct

CAPE TOWN, Oct 23 (Reuters) - South Africa on Wednesday slashed growth expectations for this year to 2.1 percent from the 2.7 percent forecast in February, as widespread labour strikes and power constraints stifle the continent’s largest economy.

Economic weakness in Europe, one of South Africa’s biggest trading partners, has dampened demand for exports and made it difficult for the private sector to create much-needed jobs.

Pretoria also cut growth forecasts for the next two years and now expects 3 percent expansion in 2014 and 3.2 percent in 2015.

“Labour disputes, electricity shortages and other supply-side disruptions have weighed down business and consumer confidence, and lowered demand for goods and services,” the Treasury said in its medium-term budget.

“Effective resolution of these problems will boost confidence and economic performance.”

An economic recovery over the next three years could increase employment by 1.7 percent a year, below what is necessary to reduce joblessness, which remains stubbornly high at around a quarter of the labour force.

Both the private and public sectors have been under pressure from frequent labour unrest, which has resulted in above-inflation wage settlements of 7.9 percent in the first half of this year from 7.6 percent in 2012.

Strikes have also delayed the completion of a 800 MW power plant that is now expected in the second half of 2014, and the cabinet has agreed on a new coal-fired facility to alleviate tight electricity supply.

The Treasury anticipates inflation will remain below its 6 percent upper-limit target in the next three years, although the weak rand poses a risk to that forecast.

The current account is expected to remain above 6 percent over the medium term as domestic savings lag behind investment growth.

The rand, which lost nearly 12 percent of its value over the year to July, will support exports provided the depreciation is sustained and inflation levels remain low and stable.

The government is implementing a national development plan aimed at accelerating growth and ending poverty in the 3.4 trillion rand economy ($349 billion) through investing in infrastructure and other measures.

South African companies are turning their attention to sub-Saharan Africa, which now takes a quarter of their manufactured exports.

Countries north of South Africa’s border are expected to grow by an average of 5 percent this year, compared with 4.5 percent by its BRIC peers. ($1 = 9.7438 South African rand) (Reporting by Helen Nyambura-Mwaura; editing by David Dolan)

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