Govt must revise inflation target, says economist

The government needed to revise its inflation target to combat South Africa’s first recession in 17 years, an economist said on Wednesday.

“Our big problem is that inflation is not coming down as much as we would like it to,” Econometrix chief economist Azar Jammine said at the launch of a debt forum in Johannesburg.

The South African Reserve Bank needed to decide if it wanted to stick to the current inflation target of between 3% and 6%, he said.

“The most logical thing to do would be to increase the target to between 4% and 7%, allowing it to reduce interest rates further,” said Jammine.

If the inflation target remained the same, he predicted South Africans would not see many more interest rate cuts in the near future.

Jammine said South African banks were in a way responsible for the recession.

First the banks were irresponsible in their credit offerings, and now they were reckless with “draconian” credit requirements which were stifling the property market.

“The banks are at risk of generating a recession of their own making,” said Jammine.

But there are several reasons to be “relatively positive” about South Africa’s economy in the next year, he added.

“Things are tight, but I do see a light at the end of the tunnel.”

He based his cautious optimism on a “whole host of reasons”, including the fact that growth in other emerging markets, such as India and China, remained intact.

“The correlation between South Africa and other emerging markets is higher than the correlation between South Africa and the rest of the world,” said Jammine.

He said he suspected most economists got their gross domestic product (GDP) predictions for the first quarter of 2009 wrong because they based it on international predictions.

The GDP tumbled an annualised 6,4% after contracting 1,8% in the final quarter of 2008.

According to economists, two consecutive quarters of negative growth meant an economy was technically in recession.

Jammine said South Africa had several big sports events coming up, including the Confederation Cup, the Lions rugby tour and the Soccer World Cup next year.

This meant that much money was being invested into infrastructure development here, while other countries were not as focused on that as they should be.

“The momentum is there,” said Jammine.

“We are starting to see green shoots of recovery,” he added.—Sapa

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