SA to weather global crisis

Kganyago also said at the Reuters Economist of the Year event that the economy might have taken a knock since the beginning of this year but is "nowhere close to a recession".

South Africa's financial markets have been buffeted by waves of risk aversion during the year-old global credit crisis that has spread from the US financial sector.

The country's large current account deficit - at 7.3% of GDP in the second quarter of 2008 - makes it heavily dependent on foreign inflows.

"We are not an island. We will be affected through a number of channels but will not see anything that will require policymakers' intervention," he said.

"The road ahead (for global financial markets) continues to look bumpy. South Africa has not been immune to these developments. We have not been shielded but because of the robustness of the regulatory reforms ... we will weather the storm," Kganyago added.

"The slowdown in consumer demand, though painful for some, is a necessary adjustment after a prolonged period of rapid growth fuelled by a credit boom that pushed household debt to record high levels."

Household debt eased to 76.7% of disposable income in the second quarter after hitting a record 78.2% in the first quarter.

"It is encouraging that household debt seems to have peaked ... further adjustments would be necessary to balance the economy and to support sustainable growth."

Analysts say domestic demand has cooled in the wake of 500 basis points worth of interest rate increases since June 2006 as the central bank grapples with record high inflation.

The Reserve Bank left its key repo rate unchanged at 12% in August, partly heeding calls that monetary tightening was starting to strangle economic growth.

The outlook for inflation in 2009 has also improved.

Kganyago said strong agricultural production would help boost growth and depress food prices, one of the main drivers of soaring inflation.

Economic growth has averaged 5.1% over the past four years, but is seen slowing to 4.0% in 2008, the National Treasury has said, in part due to an electricity shortage.

"The economy has taken a knock from the global developments, and we have our own capacity constraints but we are nowhere close to a recession," Kganyago said.

"Actually with the rebalancing we have seen, this economy will continue to grow quite strongly relative to what is happening in the rest of the world."

The Treasury will update its macroeconomic forecasts for the next three years on October 21.

State utility Eskom has been struggling to meet demand and the Treasury has budgeted R60bn over the next three years in the form of guarantees to help the power firm pay for a R343bn, 5-year expansion programme.

Kganyago said the guarantees would not negatively affect the national budget, but consumers should be prepared for higher tariffs.