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May 27 2012 11:21
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Johannesburg -
The government needed to revise its inflation target to combat
South Africa's first recession in 17 years, an economist said on
Wednesday.
"Our big problem is that inflation is not coming down as much as
we would like it to," Econometrix chief economist Azar Jammine said
at the launch of a debt forum in Johannesburg.
The SA Reserve Bank needed to decide if it wanted to stick to
the current inflation target of between three and six percent, he
said.
"The most logical thing to do would be to increase the target to
between four and seven percent, allowing it to reduce interest
rates further," said Jammine.
If the inflation target remained the same, he predicted South
Africans would not see many more interest rate cuts in the near
future.
Jammine said South African banks were in a way responsible for
the recession.
First the banks were irresponsible in their credit offerings,
and now they were reckless with "draconian" credit requirements
which were stifling the property market.
"The banks are at risk of generating a recession of their own
making," said Jammine.
But there are several reasons to be "relatively positive" about
South Africa's economy in the next year, he added.
"Things are tight but I do see a light at the end of the
tunnel."
He based his cautious optimism on a "whole host of reasons",
including the fact that growth in other emerging markets, such as
India and China, remained intact.
"The correlation between South Africa and other emerging markets
is higher than the correlation between South Africa and the rest of
the world," said Jammine.
He said he suspected most economists got their gross domestic
product (GDP) predictions for the first quarter of 2009 wrong
because they based it on international predictions.
The GDP tumbled an annualised 6.4 percent after contracting 1.8
percent in the final quarter of 2008.
According to economists, two consecutive quarters of negative
growth meant an economy was technically in recession.
Jammine said South Africa had several big sports events coming
up, including the Confederation Cup, the Lions rugby tour and the
Soccer World Cup next year.
This meant that much money was being invested into
infrastructure development here, while other countries were not as
focused on that as they should be.
"The momentum is there," said Jammine.
"We are starting to see green shoots of recovery," he added.
- Sapa