Marcus gloomy on SA recovery

Johannesburg - The reality is the global economy probably never emerged from the crisis and this has significant implications for growth outlooks in South Africa, Reserve Bank Governor Gill Marcus said on Wednesday. 

Speaking on Wednesday at a Power Breakfast club function at the Johannesburg Country Club, she added the weak global backdrop and slow recovery by banks served up a "tough outlook" that South Africa needed to factor in.

"The recovery in South Africa is hesitant, fragile and uneven," she said.

She noted that there are limits to what can be done by monetary policy on its own, with fiscal policy, a more stable rand, closing the output gap, job creation and too high executive pay also important considerations. But she stopped short of saying there was a new policy to intervene on the rand.

"Interest rates are not the only issues," she said, noting that some real interest rates were negative around the world.

She said the sustainability of South African growth depends on the global recovery and Europe, which is the destination of one third of manufactured exports.   

"Downside risks are being built into forecasts, or greater fat-tail risks," she noted.

She feels there will be low interest rates globally for longer than expected.

"Growth may be 4.6%, but the output gap remains wide," she said. She expects  growth to average around 3% for 2010 in South Africa.

Marcus also said that the latest PMI reading points to contraction in manufacturing, while continued contraction of private sector investment is a concern.

She said while South African inflation should rise moderately in the fourth quarter of 2010, it remains comfortably within the 6% band.

Marcus is due to announce the country's interest rate decision on July 22, and analysts spoken to at this function believe no policy guidance on rates were given by her speech.

-  I-Net Bridge