UPDATE 1-S.Africa sees lower growth, wider budget gap as revenue wanes
(Adds growth forecasts, market reaction background)
* Revenue down partly on mine strikes, to weigh on growth
* Government to keep spending under wraps
* Growth to lag that of BRICS peers
CAPE TOWN, Feb 27 (Reuters) - South Africa cut its 2013 economic growth forecast due to subdued demand from export markets and projected a slightly wider budget deficit than previously forecast because of revenue collection undershooting targets.
In his three-year budget tabled to parliament on Wednesday, Finance Minister Pravin Gordhan said the budget gap for the financial year beginning in April would widen slightly to 4.6 percent of GDP from the 4.5 percent forecast in October last year.
However, the deficit is slightly narrower than the 4.7 percent predicted by economists polled by Reuters earlier this week, and the 5.2 percent gap projected for 2012/13.
The shortfall was partly to due reduced revenue from the mining sector, hit by strikes last year that left more than 50 people dead and shaved 15 billion rand ($1.7 billion) of output in Africa's biggest economy.
Tax revenue for the current year ending in March would likely be 16.3 billion rand ($1.84 billion) below projections. In 2013/14 and 2014/15 it is expected to underperform by 13.2 billion rand and 27.8 billion rand respectively.
Gordhan cut the growth forecast for this year to 2.7 percent from the 3.0 percent earlier seen, partly due to subdued demand from South Africa's key markets in Europe.
Growth expectations for the next two years have also been cut, with 3.5 percent seen for 2014 and 3.8 percent expected in 2015, far below the 7 percent growth the government says is needed to create a significant number of jobs.
"Weak external demand among South Africa's traditional trading partners has affected exports, particularly for manufactured goods," the Treasury said.
Domestic consumer demand, which accounts for about 60 percent of GDP, would remain modest as households struggle to find jobs while existing debt levels remain high.
Growth is also likely lag that of South Africa's peers in the BRICS group of leading emerging market economies, with China expecting to expand by 8.2 percent in 2013, while GDP in India is seen rising 5.9 percent and Brazil by 3.5 percent.
Gordhan said the government, still smarting from credit downgrades from Moody's, Standard & Poor's and Fitch, would keep a tight grip on its purse strings, with plans to reduce spending by 10.4 billion rand.
"The deficit is there because of the revenue loss that we have experienced, not because of expenditure," the finance minister stressed at a news conference before his speech to parliament.
But President Jacob Zuma's government, which has faced a series of protests against poor basic services in impoverished townships, would continue pouring money into infrastructure, education and health services, he added.
"This government will not get to the point where we impose austerity on our people," Gordhan said, alluding to fiscal tightening measures that have triggered violent protests in countries such as Greece.
The current account would remain under pressure, averaging a 6.2 percent deficit over the next three years and putting pressure on the rand exchange rate.
The rand weakened to 8.88 against the dollar from 8.835 before Gordhan began his address to parliament and was still around that level at 1336 gmt.
Government bonds weakened, with the yield on the benchmark 2026 paper jumping to 7.31 percent from 7.235 percent beforehand. ($1 = 8.8437 South African rand) (Additional reporting by Xola Potelwa and Wendell Roelf)