South Africa looks set for a second consecutive quarter of negative growth, central bank Governor Tito Mboweni said on Tuesday, tipping the continent’s biggest economy into recession.
But he added there appeared to be a tentative change in the investor mood towards the country, with portfolio inflows having turned positive this year, while the worst of the global downturn may be past.
South Africa’s economy contracted 1,8% in the fourth quarter of 2008, with the manufacturing and mining sectors hit hard by a global downturn.
Data in the first three months of the year show further strain — manufacturing output declined 11,7% and 15,1% in March and February respectively, and retail sales also shrunk — pointing to the first recession since 1992.
”Current indications are that the negative trends might have continued in the first quarter of this year,” Mboweni said at a conference of the Road Freight Association in Vanderbijl Park, about 100km south of Johannesburg.
”The high frequency data indicates that the manufacturing sector, in particular, remains under pressure.”
Statistics South Africa releases Q1 economic growth data next week, two days ahead of the central bank’s policy meeting to discuss interest rate changes.
A poor number — a second quarter of decline will signal a technical recession — will back the case for another big cut in the repo rate, despite inflation remaining outside the 3% to 6% target band.
Mood change
But Mboweni said it was not all ”doom and gloom”.
There were signs that global measures to lift growth may be working, while foreigners had turned net investors in South Africa.
”There has been a tentative change in the mood to South Africa,” he said.
Governments around the world have slashed interest rates and boosted spending to try to kick-start growth. South Africa’s government and its utilities plan infrastructure spending of R787-billion over the next three years.
The Reserve Bank has reduced the repo rate by 350 basis points to 8,5% since December, by 100 basis points at the last three meetings.
Analysts are divided on whether it will shift back to 50 basis point moves or continue its aggressive loosening stance.
Inflation remains a concern for the central bank given an expected big jump in electricity prices. Utility Eskom has requested a 34% increase for this year.
Mboweni dismissed worries that a new administration led by Jacob Zuma may demand a major change in central bank policies, due to the increased influence of trade union and communist party allies within the government.
”The only area that it might have an impact on is the inflation targeting framework … [but] I have not been informed of any changes,” he said.
The Congress of South African Trade Unions wants the targets scrapped, claiming the resultant tight monetary policy has hurt the poor. New Finance Minister Pravin Gordhan said last week government would debate policy, but did not point to any shift.
Mboweni also said he planned to meet the heads of the country’s commercial banks to discuss their lending rates, after complaining last week rates offered to some clients are too high.
He has also questioned why the differential between the repo rate and prime lending rate stays at 3,5%.
Mboweni’s spokesperson Samantha Henkeman said the meeting was to take place late on Thursday. — Reuters