SA is experiencing one of the worst growth periods in its history, and if the forecasts prove correct, the current decade will be the second-worst in the postwar period, the Reserve Bank said on Wednesday, as it released its Monetary Policy Review.

The Bank has also calculated that the economic growth rate in 2016 could have been 2.1%, instead of the outcome of 0.3%, were it not for the decline in confidence, which was one of the key reasons SA’s growth failed to follow world growth, as it had done in the past.

This demonstrated the cost of policy uncertainty and the importance of restoring confidence, the Bank said in the review, which is published twice a year to coincide with the monetary policy forums that the Bank holds around the country that are intended to broaden discussion on monetary policy to a wider audience.

The Bank expressed concern, however, that its calculations suggested that "normal" growth was about 2% — which is below the longer-run trend for SA of 3% and well below the 5% a year that the National Development Plan aspires to.

But SA is not expected to reach a growth rate of even 2% within the next three years, with the Bank projecting that it will recover to only 1.5% by 2019. In an environment of low confidence and weak investment, there is relatively little monetary policy can do to restore growth to historical trends of about 3%, the Bank said in the review.

"If policy makers are not worried about growth I would be worried about them," Reserve Bank governor Lesetja Kganyago said at the presentation on Wednesday. " Every South African should be worried with growth which is bubbling around 1% - at this level it is not about to make a dent in poverty or unemployment."

Ahead of the medium-term budget policy statement, which Finance Minister Malusi Gigaba is due to present on October 25, the Bank’s economists also have estimated that the budget deficit for the current fiscal year could turn out to be 4.5%, not the 3.7% projected in the February budget, if revenue trends for the first four months of the fiscal year continue. These suggest that revenue will be R40bn, or 4% lower than budget 2017 estimates.

"This presents a range of unappealing choices," the Bank says in the review. "Larger spending cuts may further weaken growth, yet the scope for increased taxation is limited. Furthermore, additional borrowing would take debt ratios closer to unsustainable levels and divert even more expenditure into interest payments."

Though the inflation outlook has improved, the Bank would prefer it to come down to closer to the 4.5% midpoint of the inflation target range over the medium term, and it set out in the Monetary Policy Review the reasons it was bad for SA to have the inflation rate hovering at about 6% — a level that is now well above the average rate of 3% to 4% in emerging markets and 2% in advanced markets.

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