SA recovery seen this year, says Reserve Bank

05 Oct 2009 11:20 - Staff Reporter

South Africa's economy may come out of recession later this year, the South African Reserve Bank's deputy governor says.

South Africa’s economy may come out of recession later this year, lifted by better manufacturing performance and a rebound abroad, the South African Reserve Bank’s deputy governor says.

Africa’s biggest economy fell into its first recession in 17 years this year and suffered its third consecutive contraction in the second quarter.

However, the second quarter fall was less severe than the previous three months and there are signs that South African factories, hardest hit by a global downturn, may be on the mend.

“Based on the composite leading business indicator, which has been increasing for the last few months, we may emerge from recession later this year,” Daniel Mminele told a seminar in Istanbul on Sunday.

“Like in other parts of the world, there is uncertainty as to the strength of the recovery we are going to see.”

Manufacturing appeared to recovering and businesses and consumers were more optimistic, Mminele said according to a written copy of his speech.

Analysts expect a series of interest-rate cuts this year and an expansionary fiscal policy to propel the economy back to growth in 2010 after a 2% decline for 2009.

The purchasing managers index, which measures manufacturing activity, hit a 16-month high of 48 in September. The leap from 39,3 was the second-biggest in the index’s 10-year history but is below the 50 mark, signalling the sector is still shrinking.

A factory and mining slump was the main driver in dragging the economy into recession and a recovery could lead to growth.

Mminele reiterated the view of the rates-setting policy committee—which left the repo rate at 7% last month—that the risks to the inflation outlook were evenly balanced.

He said the central bank was not overly worried about the impact of expansionary fiscal policy on inflation, as this was suitable for the current global and local economic conditions.

“Taking cognisance of the global financial and economic environment, and domestic developments with regard to growth, monetary policy will remain primarily focused on inflation management,” Mminele said.

Consumer inflation has slowed this year, but at 6,4% is still above the bank’s 3% to 6% target.