Fiscal austerity programmes in Europe have the potential to derail economic recovery in other regions and are of particular concern because of South Africa’s close trading ties with that area, South African Reserve Bank Governor Gill Marcus said on Wednesday.
In a speech to the bank’s shareholders, Marcus said the current global environment was characterised by heightened risk and that growth in advanced economies has become hesitant after a promising start in the year.
“The economic and political ramifications of fiscal austerity are of particular concern, not only because of their potential to derail the recovery in other regions, but also because of South Africa’s close and significant trading relationship with Europe,” she said.
Marcus said it was unclear whether strong growth in emerging markets that appeared to have recovered from the global economic crisis could be sustained, given the weak growth in industrialised economies.
Improved inflation environment
South Africa’s economic growth slowed to 2,6% in the third quarter, mainly as the manufacturing sector contracted by 5% due to domestic strikes and sluggish growth by its trading partners.
In order to support the economy further, the central bank cut the repo rate again in November by 50 basis points to 5,5%, to add to 600 basis points worth of decreases since December 2008.
Marcus said the improved inflation environment had provided some space for additional monetary stimulus without jeopardising the achievement of the inflation target.
“The bank remains committed to pursuing its objective of price stability within a flexible inflation-targeting framework, in the interest of balanced and sustainable economic growth and employment in South Africa,” she said.
The bank expects inflation to stay within the target band of between 3% and 6% until the end of 2012. — Reuters