Global market crisis: 'SA will weather the storm'

South Africa’s financial markets have not been shielded from a global market crisis but will weather the storm, thanks to a strong regulatory framework, Treasury Director General Lesetja Kganyago said on Wednesday.

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 United States financial sector. The country’s big current-account deficit makes it heavily dependent on foreign investment.

“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.

Kganyago also said the slowdown in consumer demand, which has fuelled economic growth in the past four years but also been inflationary, was a necessary adjustment.

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 spiralling inflation.

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

Economic growth has averaged 5,1 % over the past four years, but is seen slowing to 4.% in 2008, the National Treasury has said.—Reuters