Sep 17 2008

Reality check for confident Manuel

Published by at 12:14 pm under Opinion,South Africa

First published on my old blog on 13/6/2008. Today I must add, in all fairness, that Trevor is not the only finance minister in the world revising budget numbers!

Four months after Trevor’s Budget speech in February, it is now clear to what extent he had “misjudged” the local and international economic environment when drawing up his Budget. Consequently, most of his budgeted numbers will be way off target. 

His forecast for inflation was way to optimistic, his forecast of the average interest rate in the period far to low, his view of the rand far to rosy and his estimate for real GDP growth to high. Consequently, his income will be lower than budgeted and (I guess) his surplus might even turn into a deficit. But, there we’ll have to wait and see. Also read my previous articles on the 2008 Budget (they are tagged Trevor Manuel). 

This is how FNB economist Cees Bruggemans saw the situation after yesterday’s interest rate hike:

“As things stand, with inflation yet to peak, the economy already weak, the full extent of recent interest rate increases still to become reflected in economic performance, and interest rates likely also still to peak, the economy will probably experience two or more quarters of negative growth these next 18 months, which would eventually become recognized as a recession. 

“Thus the record long expansion, underway since 3Q 1999, is set to come to an inglorious ending quite soon, after nine years of uninterrupted growth.”

Compare this with Trevor’s super-confident mood in the Budget speech just four months ago, when he referred to the growth prospects of the economy: 

In 2008 the economy would grow by 4%, in 2009 by 4.2% and in 2010 by 4.6%, he said. 

What we can safely say at this point: This will be Trevor’s worst budget (as far as the credibility of his numbers are concerned) since he took over. 

A reality check like no other…

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