Political situation might have ‘exaggerated’ decline in economy, Kganyago says
The response by the domestic economy to current world growth is "unusually weak", Reserve Bank governor Lesetja Kganyago said on Tuesday.
Kganyago was speaking in a presentation to Parliament’s standing committee on finance on the role of the bank, the current economic situation and the bank’s forecasts for future growth.
He said SA and Venezuela were the only sizeable economies currently in recession.
The governor said the contraction in real GDP in the first quarter had been broad-based, with confidence weakening in quarter two "possibly exaggerated somewhat by the political environment".
The bank has forecast growth of 0.5% for SA in 2017 and 1.2% in 2018.
Business and consumer confidence had both fallen in the second quarter of 2017, with business confidence dipping in all five of the sectors surveyed by the Bureau for Economic Research.
"Both the political climate and insufficient demand — constraints to business conditions in the manufacturing sector — increased notably in quarter two in 2017," the governor said.
Inflation was low and the near-term outlook for consumer price inflation (CPI) had improved. The appreciation in the exchange value of the rand since 2016 had contributed significantly to the recent moderation in CPI inflation, particularly for underlying goods.
"Currently SA’s real and nominal interest rates are at near long-term lows due to the relatively low inflation environment," Kganyago added. Maintaining positive real rates was prudent to contain inflationary pressures.
The governor emphasised the need for policy certainty if confidence in the economy was to be restored. Policy uncertainty whether it be in mining, agriculture or manufacturing acted as a deterrent to long term investment. He also agreed that corruption needed to be dealt with because if nothing was done people would begin to wonder if there was still the rule of law in the country.
"If we fail to act to restore confidence we will get into all sorts of trouble," Kganyago said.