The domestic landscape had seen a marked change in recent months, Reserve Bank governor Gill Marcus said yesterday.
At a press conference after the meeting of the monetary policy committee (MPC), Marcus spoke of the “unacceptable levels of violence that have accompanied the recent wave of wildcat strikes”. She urged employers and employees to address the “fraught relations” between them.
As expected, the MPC kept the repo rate unchanged at 5 percent. And, after dealing with issues relating directly to inflation, Marcus focused on the broader issue of industrial unrest and the direct and indirect costs to the economy: lost production and rising finance costs, as investors become wary of the country.
Two rating agencies have downgraded South Africa’s sovereign rating since the July MPC meeting, increasing the cost of government debt. The related downgrading of parastatals, municipalities, banks and other private companies has spread the damage.
Marcus dealt even-handedly with workers and management.
“Employers need to better appreciate the contribution to stability that an informed, experienced, skilled and organised workforce can make and also need to be better informed about, and sensitive to, the conditions and circumstances of their employees,” she said.
“At the same time, employees need to ensure an end to the use of violence in labour relations. In their quest for fair and decent employment conditions, [they] need to recognise the potential negative effects of unsustainable cost structures on employment levels and competitiveness, in the absence of improved productivity.
“In the prevailing conditions, there is the danger of a wage-price spiral and, inevitably, it will be the workers who bear the brunt of the fall-out.”
The outlook for both growth and inflation have deteriorated since the last MPC meeting.
Marcus revised the domestic growth forecast downward, to 2.5 percent this year from the bank’s earlier estimate of 2.6 percent; and to 2.9 percent next year from 3.4 percent.
And the bank’s inflation forecast has risen to 5.6 percent in the current quarter and 5.6 percent next year, from 5.3 percent and 5.2 percent, respectively. The forecasts are based on the current weighting of Statistics SA’s consumer basket.
Marcus said new weightings would be incorporated into the forecasts only next year when Stats SA had finalised its calculations. Inflation rose to 5.6 percent last month from 5.5 percent in September and 5 percent in August.
In answer to a question, Marcus said there was always a risk that inflation would breach the ceiling of the 3 percent to 6 percent target range. She flagged “the recent trend in wage settlements” and rand weakness as major risks.
She warned that high wage settlements could lead to “a wage price spiral, which could negate the real benefits of these wage increases to workers”. But she noted the impact would be moderated by job losses “that are likely to accompany such increases in the context of a slowing economy”.
She said the unrest had helped to weaken the rand, which depreciated about 6.7 percent against the dollar since the July MPC meeting, and 5.8 percent on a trade-weighted basis.
Another factor influencing the rand was the widening deficit on the current account, Marcus said. The gap between earning from exports of goods and services and the import bill was likely to have widened due to the work stoppages.