(AsgiSA) Annual Report 2008 - South African Government Information
(AsgiSA) Annual Report 2008 - South African Government Information
(AsgiSA) Annual Report 2008 - South African Government Information
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Accelerated and Shared Growth Initiative for <strong>South</strong> Africa<br />
ANNUAL REPORT<br />
<strong>2008</strong><br />
2. Macroeconomic overview<br />
To achieve the objective of halving poverty and unemployment by 2014, <strong>AsgiSA</strong> estimated<br />
that the economy would need to grow on average by 4,5% per annum between 2004 and<br />
2009, and reach an average growth of 6% for the period 2010 to 2014. To achieve this accelerated<br />
growth, it was estimated that gross fixed capital formation (GFCF as physical investment<br />
spending) will need to grow by about 10% a year, with investment as a percentage of<br />
gross domestic product (GDP) rising from 16% to 25% by 2014.<br />
In respect of macroeconomic policy, <strong>AsgiSA</strong> argued that inflation targeting should remain a<br />
government policy to lower inflation and interest rate volatility; thereby not only reducing<br />
exchange rate volatility but also positively contributing to lowering international risk<br />
premiums. <strong>AsgiSA</strong> also argued for retaining the policy of a floating exchange rate regarding<br />
the value of currency and currency volatility, and that the fiscal and monetary authorities<br />
must explore possibilities and opportunities to reduce the currency’s volatility and ensure,<br />
as far as possible, that the level and stability of the currency supports balanced growth. This<br />
should include committing resources to support accumulation of foreign exchange reserves.<br />
Economic growth averaged 3% for the period 1994 to 2003 and averaged growth of over<br />
5% from 2004 to 2007 – the <strong>AsgiSA</strong> period. This robust growth was backed by progressively<br />
entrenched macroeconomic stability accompanied by sound and transparent fiscal and monetary<br />
policies. This resulted in, among other things, a relatively lower inflation and interest<br />
rate environment, the closing of the forward book by the <strong>South</strong> <strong>African</strong> Reserve Bank (SARB)<br />
and a build-up of foreign exchange reserves. It is possible to question whether a more vigorous<br />
reserve accumulation strategy and a more cautious fiscal policy should have been followed,<br />
as a relatively overvalued exchange rate and rapidly expanding demand contributed<br />
to a rising balance of payments deficit, which eventually undermined our performance.<br />
Real annual GDP at market prices increased by 3,1% in <strong>2008</strong>, following an increase of 5,1%<br />
in 2007. The slowdown in growth for <strong>2008</strong> is mainly as a result of the electricity emergency<br />
in the first quarter of <strong>2008</strong> when growth of only 1,7% was recorded and a decline of growth<br />
of 1,8% in the fourth quarter as the global economic crisis started impacting on the <strong>South</strong><br />
<strong>African</strong> economy. While the growth target was hit for the first four years of <strong>AsgiSA</strong>, the next<br />
period will be a greater challenge.<br />
Inflation accelerated way beyond the upper limit of the inflation target range of 3% to 6%<br />
during <strong>2008</strong> with CPIX inflation peaking at 13,6% in August <strong>2008</strong>, mainly as a result of<br />
higher global commodity prices, in particular energy prices and a weaker exchange value of<br />
the Rand. Since then, inflation has decelerated and is expected to be back within the inflation<br />
target range by the third quarter of 2009 as global economic growth slows down as a<br />
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