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IMF Predicts Positive Economic Outlook For South Africa

by Robert Lee,, London

12 September 2006

The International Monetary Fund (IMF) last week released the conclusions of its Article IV consultation with South Africa, which ended on August 2.

The IMF observed that:

"Real GDP grew by 4.9% in 2005 and continued to grow strongly in 2006. High growth was driven by strong domestic demand, with private consumption and investment spending supported by low interest rates and improved sentiment. Household consumption was also boosted by rising incomes and wealth effects from buoyant housing and stock prices. After a slowdown in late 2005, partly reflecting temporary supply shocks, real GDP grew by 4.2 percent in the first quarter of 2006."

"The strong pace of economic activity led to higher employment. Total employment grew by 5.7 percent in the year to September 2005. However, the unemployment rate remained broadly unchanged at 26.7 percent, as labor force participation rose significantly."

The report went on to reveal that:

"The fiscal deficit fell to 0.3% of GDP in FY2005/06, bringing government debt down to 34.1 percent of GDP by March 2006. The narrowing of the deficit mainly reflected a large increase in tax revenue, owing to strong economic activity and firm enforcement."

It continued:

"Directors considered that the economic outlook for South Africa is broadly positive. Continued solid policy implementation and favorable external conditions should establish the foundations for sustained growth."

"Directors viewed uncertainties in the external environment as the main source of risk to the outlook. A deceleration in global activity would affect South Africa owing to the structure of the country's exports. A more immediate risk would be a weakening sentiment for emerging market economies and a continuation of the recent slowdown in capital flows. Directors also noted that, in light of these factors, the external current account deficit could represent a point of vulnerability. Nonetheless, they considered that, based on its strong fundamentals, South Africa is well placed to face these risks."

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