Finance Minister Trevor Manuel, in presenting his Medium Term Budget Policy Statement, said on Tuesday that the financial storm has arrived and is fiercer than anyone could have imagined, but SA will ride out the storm due to the pre-emptive action it has already taken.

"The thunder will pass," said Manuel.

"We saw the signs early and we took appropriate action," he told parliament.

"We can say to our people: our finances are in order, our banks are sound, our investment plans are in place, our course is firmly directed at our long- term growth and development challenges, and we will ride out this storm, on the strength of a vision and a plan of action we share," he said.

He noted that the government took the "tough decisions" early.

No avoiding the storm

"Yet there is no avoiding the coming storm," he added, saying that global economic growth will slow "for several years" and SA's export earnings will be negatively affected and it will be more difficult to finance the country's investment needs.

He told the media in a briefing before delivering the speech that although GDP is seen dipping to 3.7 percent this year [from 5.1 percent in 2007] and to 3.0 percent in 2009 [then to four percent in 2010] this did not mean growth had been "slashed".

"We have not slashed our growth outlook. Clearly, there is a very good story," he said, noting that a small budget surplus of 0.1 percent had been projected for the fiscal year.

"Continuing investment in infrastructure contributes to the momentum of growth in SA," he told parliament in his speech.

He said the country's prudent approach to fiscal policy had enabled Treasury to "cushion the economy" against the worst effects of the global crisis.

He noted, too, that CPI will fall into the three to six percent target band in the third quarter of 2009.

Inflation objective

"Moderation of inflation must remain a central policy objective," he said.

Amongst key economic challenges he said the savings rate needed to be lifted, as well that a more export orientated economy needs to be constructed.

He also wants to see a more labour intensive growth trajectory.

Manuel noted that the shift to a deficit in the next fiscal year of -1.6 percent of GDP is "moderate" in the bigger picture and it is the early decisions on fiscal management that allow this adaptability to the changing business cycles.

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