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The rising oil price, the potential weakening of the rand against the US Dollar and supply constraints around wheat pose upside risks to food and headline inflation.
According to the Minister of Finance, Enoch Godongwana, this is because the conflict between Russia and Ukraine carries significant risks for a world economy that is yet to fully recover from the shock of the COVID-19 pandemic.
“The longer the conflict lasts, as well as the imposition of further sanctions, could lead to widespread global inflation and impede global economic recovery,” Godongwana said in Parliament during the debate on the 2022 Fiscal Framework and Revenue Proposals.
There is an upside on the matter thought, with the Minister highlighting, “On the positive side, we expect that the rally in export commodity prices, stemming from supply concerns brought about by the conflict, will provide added support to the local mining sector and a possible windfall to revenue collections.”
The recently released Gross Domestic Product (GDP) for the fourth quarter of 2021 by Statistics South Africa shows that the economy grew by 1.2% after shrinking by 1.7% in the third quarter of 2021.
“This is 0.2% lower than the Treasury estimations. Overall, South Africa’s economy grew by 4.9% last year, compared to the COVID-19 driven contraction of 6.4% in 2020. This represents a slightly better growth than estimated by National Treasury.
“There were improvements in a number of sectors namely: agriculture, manufacturing, services and transport. Of concern are declines in mining production, construction, electricity, government and financial services,” the Minister said.
He called for the acceleration of inclusive economic growth and job creation.
“This must shape all our macro and microeconomic policies and interventions. It is only through a sustained economic growth that South Africa will be able to significantly reduce unemployment, poverty and inequality. As outlined in the Economic Reconstruction and Recovery Plan, and emphasised in the State of the Nation Address as well as the Budget Speech, we must act urgently to deepen social compacting and broaden consensus around what needs to be done to pull our economy out of its poor state,” the Minister said.
Work has begun to finalise a series of social compacts with various social partners. “Efforts to grow our economy will not only depend on macro-economic interventions. We must continue with our reform agenda – in energy, telecommunications, rail, ports water and sanitation, as well as in boosting tourism and attracting rare skills into our economy.”
The Minister emphasised that it was encouraged that the spectrum auction begins on Tuesday, 8 March 2022, and be completed by the end of this month.
“This will support lowering the cost of data; improving broadband coverage including in rural areas; increasing broadband speeds; and the rollout of 5G,” he said.
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