South Africa’s economy is recovering, but the recovery is “fragile and hesitant”, South African Reserve Bank (SARB) Governor Gill Marcus said on Wednesday.
“Our recovery is substantially dependent on the global recovery, and on Europe in particular as a third of our manufactured exports go there,” Marcus told a breakfast presentation in Johannesburg.
“A slowdown in Europe is not inconsequential for our economy.”
The governor said the global economy was at a crossroads.
“The world is in the midst of significant change, and the events in Europe are the most vivid examples of how complex and difficult the current environment is.”
While some analysts now saw a double dip as a likely scenario, even the more optimistic, who had retained a positive outlook, now had a downside risk built into their forecasts.
“The reality is that we probably never really emerged from the crisis, which is now entering its next phase,” Marcus said.
While the inflation outlook for South Africa was presently favourable, the SARB expected inflation to rise in the fourth quarter of 2010.
However, the outlook had enabled the SARB to reduce the repo rate to its lowest level in nominal terms, at 6,5%, since the late 1970s, Marcus said.
Turning to growth, Marcus said that while the outlook remained positive, South Africa’s growth was expected to remain much slower than that in many other emerging markets.
“In recent days, a number of analysts have also downgraded their quarterly growth forecasts for this year in the light of global developments.”
However, she said that growth was expected to average about 3% in 2010.
Possible contraction
Marcus added that South Africa’s manufacturing sector had led the recovery since the second half of last year, mainly as a result of an export recovery and the outlook therefore depended on global prospects.
“Unfortunately, the most recent data shows that manufacturing may be slowing down, and the Purchasing Managers’ Index is down at 48,4, the fourth consecutive monthly decline, indicating a possible contraction going forward.”
Marcus said this posed a risk to the growth outlook for the rest of the year.
She added that the SARB had decided that a wider knowledge was needed by South Africans of the role the central bank played.
“The central bank is perceived as a black box sitting in Pretoria which takes decisions and no one knows why.”
She said there was an expectation that the SARB had “silver bullets” and could solve all problems.
“People think that by waving a wand we can create low interest rates.”
Marcus said that as many people as possible should know what the SARB could and could not do.
“We don’t solve growth or unemployment problems,” Marcus said. — Sapa