Finance Minister Pravin Gordhan tells Parliament the global economic environment remains weak, with risks relating in particular to the situation in the euro zone.

South Africa is living through “dangerous times” and faces “formidable challenges” arising from both the dismal situation in Europe and the structure of its own economy and society, Finance Minister Pravin Gordhan has warned.

Global economic growth remained weak and growth in output in the domestic economy was uneven and slow, the minister said in his budget vote speech in Parliament on Friday.

“The domestic economy is showing some signs of moderate growth but the external environment remains weak and risks are high … It is clear that investment is still held back by both global and domestic uncertainties,” he said.

Output growth in the first quarter of 2012 was slower than forecast at the time of the budget in February, mainly due to the effect of the Impala Platinum strike on mining production. Retail sales had also slowed although consumption spending remained buoyant. Mining output recovered in March, growing by 5,3% month on month, but manufacturing production, which fell 4,3%, was “disappointing”, the minister said.

Mr Gordhan noted that despite high oil prices and a weaker exchange rate, inflationary pressures had remained “relatively subdued”.

“The main risks to the economy remain external,” he said. “Political developments in the euro zone have heightened the risk that Greece will exit the single currency within the next year, though there is little clarity on how this would be achieved and what its impacts would be.”

He added: “More serious for both the global economy and the potential impact on South Africa is the continuing vulnerability of several larger European economies, including Spain.

“A large budget deficit and a deflating housing bubble have reduced confidence in government finances and the solvency of Spanish banks. Our expectation is still that there will be a shallow recession in the euro zone but the risk of a deeper contraction has grown since the budget.”

Mr Gordhan said the US should post subdued but positive growth this year, at a pace similar to the 2,2% expansion in the first quarter of the year. The US recovery has not been as robust as expected, and fiscal contraction is likely to subtract from US growth next year.

There are also risks to Chinese growth, due to slowing exports to the euro zone and a deflating domestic housing bubble. While easier monetary policy should help sustain China’s growth, it is nevertheless expected to slow.

Mr Gordhan said the outcome of the national government’s interventions in Limpopo had had positive results. The province’s finances are under control, its cash position has improved and payment and procurement systems in various departments have stabilised.

“The law enforcement processes and other forensic investigations are under way in ensuring that any wrongdoing is identified and necessary action taken against individuals involved. In sum, there has been good progress, but there is more to be done,” he said.

The minister also touched on the e-tolling saga, saying it was “clearly unhelpful” that an important source of revenue for the road system had been delayed. Implementation of the e-tolling system on Gauteng’s freeways was delayed as a result of a decision of the African National Congress and because of an interim court order that the government plans to oppose.