• Economic growth is slowing marginally in 2012 because of the global economic weakness and domestic constraints but should pick up in 2013.
• The business climate is conducive for the private sector, but poverty and inequality remain particularly high.
• South Africa favours demand-side measures to resolve youth unemployment, by job creation and employment incentives.

South Africa’s economic growth increased marginally in 2011 and is projected to slow in 2012, mainly as a result of domestic structural weaknesses and a fragile global economic recovery, and to recover in 2013, subject to global recovery and to an orderly resolution of the Eurozone fiscal crisis. Average annual inflation rose in 2011 and will continue to do so in 2012, before stabilising in 2013.

Private consumption will slow in 2012 but accelerate in 2013. Public consumption will moderate whereas investment is on the rise. Merchandise exports increased markedly in 2011. Foreign direct investment (FDI) into South Africa also increased in 2011. As domestic expenditure improves with the expected increase in fixed investment in 2013, South Africa’s import intensity is expected to rise, putting some pressure on the trade balance over the next two years. This, together with increased outflows in service, income and current transfers, is likely to widen the current account deficit in 2012 and in 2013.

The budget deficit deepened in fiscal year 2011/12, but it is projected to improve during the coming two fiscal years, primarily as a result of a moderation in primary spending growth. Borrowing from abroad by public corporations, which hold about 21% of the external public debt, to finance infrastructure improvement led to a significant rise in foreign borrowing in fiscal year 2010/11. However, debt burden indicators do not signal a significant risk of debt servicing difficulties. Foreign debt remains less than 10% of the total public debt.

Unemployment fell to 23.9% at the end of 2011 from 25% in the third quarter. The government’s broad strategy to cut unemployment is part of the New Growth Path (NGP), which has as an objective the creation of 5 million jobs over a decade.