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SARB governor says SA recession unlikely, but growth still too low to cut unemployment

Jul 27 2018 11:31
Jan Cronje

SA Reserve Bank governor Lesetja Kganyago does not believe that SA will slump into a recession, but warned that constrained GDP growth would not bring down the country’s high unemployment rate.  

The central bank governor on Friday delivered an address at SARB’s Annual General Meeting in Pretoria.

Kganyago said that confidence surrounding the election of Cyril Ramaphosa as SA president in February – as measured by higher consumer confidence metrics and a strengthening rand – had not translated into a short-term boost for actual growth. 

In the first quarter of 2018 the economy contracted by 2.2%, after its somewhat unexpected 3.1% increase in the last quarter of 2017. A second successive negative is unlikely, he said. 

“At this stage, the high-frequency data for the second quarter indicate that a modest improvement is likely in the quarter, and the South African Reserve Bank does not expect a second consecutive quarter of contraction.”

Economists view two successive quarters of negative economic growth as a technical recession. A technical recession would come as a blow to Ramaphosa as he seeks to sell his ‘new dawn’ of economic opportunities to investors.  

No impact on unemployment 

The governor said that, while a technical recession was unlikely, growth would still remain relatively subdued. 

“… a reassessment of the growth outlook has resulted in a downward revision to the SARB’s gross domestic product growth forecast for 2018, from 1.7% to 1.2%." Growth of 1.9% is expected in 2019, while the forecast for 2020 remains unchanged at 2.0%. 

“At these growth levels, we cannot expect to make appreciable inroads into the unemployment problem of the country,” he said. 

Kganyago said forecasts suggest that inflation will average 4.8% in 2018. This is expected to increase to 5.6% and 5.4% in 2018 and 2019. 

“This upward drift will not help in our quest to get inflation and inflation expectations anchored closer to the midpoint of the target range.”

The governor also spoke about the mandate of the central bank, in the wake of calls for its nationalisation, including by the ANC

"The issue of the mandate of the SARB is often confused with the proposed nationalisation of the SARB. Some proponents of nationalisation believe, erroneously, that such a move would facilitate a change in our mandate."

He said it was incorrect to say that the SARB operates in the interest of private shareholders.

"This is definitely not the case. We act in the interest of the economy as a whole, guided by our mandates, and we do not favour any particular interest group or groups."

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