South African Reserve Bank governor Lesetja Kganyago. Picture: PUXLEY MAKGATHO
South African Reserve Bank governor Lesetja Kganyago. Picture: PUXLEY MAKGATHO

SA is expected to narrowly escape a recession, according to Reserve Bank governor Lesetja Kganyago.

Speaking at the Bank’s annual general meeting on Friday, Kganyago said data for the second quarter suggests the economy will make a modest improvement and avoid a second consecutive quarter of contraction, which would place SA in recession.

Last week, the governor announced that the Bank’s growth outlook had been revised down from 1.7% to 1.2% for 2018.

However, he warned: "At these growth levels, we cannot expect to make appreciable inroads into the unemployment problem of the country."

The quarterly labour force survey, which will be released by Stats SA next week, is expected to show unemployment remains uncomfortably high at 26.7%.

"As the MPC [the Reserve Bank’s monetary policy committee] has emphasised on numerous occasions, a firm commitment by government to credible structural policy initiatives and implementation is required to make an appreciable impact on employment and potential output," Kganyago said.

He said that while Cyril Ramaphosa’s election as ANC president saw consumer confidence reach a record high in the first quarter, and gave a boost to business confidence as well as leading the rand exchange rate to strengthen to levels last seen in mid-2015, the boost to confidence did not translate into a short-term boost to actual growth, he said.

Despite inflation edging upwards as the impact of the VAT increase, higher petrol prices and a recent depreciation in the rand as global risks take hold, Kganyago said the MPC still assessed the monetary policy stance to be accommodative, and appropriate in the context of the current state of the economy.

"But there is a limit to what monetary policy can do to stimulate growth. At best, monetary policy can provide some support over the cycle, and can provide a stable environment for growth," said Kganyago.