Johannesburg - South Africa will avoid a recession this year, with a recovery in areas like mining and manufacturing expected to lift growth in the last three quarters, deputy governor of the SA Reserve Bank Daniel Mminele said yesterday.
Growth in Africa’s most modernised economy contracted by 1.2 percent in the first quarter, Mminele said.
“The Reserve Bank does not believe a contraction in the second quarterly is likely,” he said.
South Africa should, however, narrowly avoid a recession, despite the Reserve Bank cutting its growth focus for 2016 to 0 percent by growing the economy 0.8 percent and 1 percent in each of the three remaining quarters.
On June 21, the Reserve Bank for the second time running kept interest rates on hold to give a boost to the economy.
As noted in the monetary policy committee (MPC) statement, the domestic growth remains extremely challenging.
“Real economic activity in South Africa has contracted in the first quarter of 2016, declining at an annualised 1.2 percent, whilst also contracting on a year-on-year basis for the first time since 2009, when economic conditions were denominated by the effects of the global financial crisis.
“The poor performance in the first quarter reflected a further decline the real output of the primary sector, coupled with slower growth in the value added by tertiary sectors,” Mminele said.
Impact
“Two factors need to be mentioned in this regard, namely the unfavourable climatic conditions, which had a considerable impact on agriculture, and the challenging trading environment encountered by the mining sector. Together these factors caused the primary sector to contract at a rate of 15.5 percent in the first quarter of 2016.”
Mminele said the recent volatility experienced was caused mainly by the external factors and changes in global risk perceptions. Although the rand depreciated sharply in the immediate aftermath of the British referendum, it has reversed these losses.
“At the time of the MPC meeting, the rand had appreciated against the major currencies, and on a trade-weighted basis, the rand had appreciated 12.2 percent. The rand has been supported by the global search for yields, the improvement in commodity prices, and also reacted to the unexpectedly large trade surplus recorded in May.
“Despite this recent strength, the rand remains vulnerable in possible changes in investor sentiment; changes in US monetary policy expectations; and domestic concerns including the possibility of ratings downgrades later in the year.”
Mminele said a week ago when the International Monetary Fund (IMF) released its world economic update, that it confirmed that the global economy continued to struggle to find momentum.
He said the IMF noted lacklustre growth in most of advanced economies and a gradual closing of output gaps, while prospects remained diverse across emerging markets and developing economies.
Recovery
Last weekend the G20 finance ministers and central bank governors indicated that the global economic recovery continued, although it was still facing challenges and downside risks, amid fluctuating commodity prices, high financial market volatility, geo-political conflicts, terrorism and refugee flows.
“While some of these factors have been with us for a number of years now, more recently, the downside risks facing the global economy have been compounded by the outcome of the British referendum vote or Brexit. As a result of Brexit, the global outlook for 2016 to17 has worsened, as the vote added significant uncertainty to an already fragile global economic environment and is likely to affect confidence and weigh negatively on consumption and investment,” Mminele said.
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