JOHANNESBURG – The Governor of the Reserve Bank Lesetja Kganyago on Thursday piled more pressure on President Cyril Ramaphosa’s administration to implement bold structural reforms to grow the economy, with the central bank now forecasting growth of just 1 percent this year, from the 1.3 percent it estimated in March.
Thursday’s Monetary Policy Meeting was also the second time the SA Reserve Bank (Sarb) cut its growth forecast this year after it slashed it from the 1.7 percent it forecast in January to 1.3 percent at its March meeting as the economy battles to gain traction.
Kganyago said that based on recent short-term indicators and negative growth in mining and manufacturing, gross domestic product (GDP) was expected to contract in the first quarter of the year.
He flagged supply-side constraints due to load shedding, a strike at a major gold mine and weak household consumption as reasons for poor first quarter performance.
“The committee remains of the view that current challenges facing the economy are primarily structural in nature and cannot be resolved by monetary policy alone. It is now even more urgent to have a combination of prudent macroeconomic policies and structural reforms that raise potential growth and lower the cost structure of the economy,” Kganyago said.
The central bank further warned that real fixed investment was forecast to contract by 0.3 percent this year, while household consumption expenditure was estimated to increase by a pedestrian 1 percent.
Moody’s last week issued its strongest warning yet that the country was fast slipping into junk status as continuing structural weaknesses and rising debt overran South Africa’s ability to service its obligations.
The ratings agency added further pressure on Ramaphosa to appoint a credible Cabinet, saying it was keeping a keen eye on the composition of the incoming administration and the policies it would pursue to address South Africa’s key credit challenges.
FNB chief economist Mamello Matikinca-Ngwenya said Sarb’s consistency in implementing its primary mandate to achieve and maintain price stability was already a major head-start for economic revival.
“We remain concerned about the persistently weak domestic growth outlook and are of the view that the expected underperformance in GDP in the first quarter will require a notable rebound in the coming quarters for growth to be stronger than the 0.8 percent recorded last year,” Matikinca- Ngwenya said.
The Organisation for Economic Co-operation and Development this week slashed South Africa’s growth forecast this year to 1.2 percent from 1.7 percent it estimated in March.
The central bank, which kept its benchmark repo rate unchanged at 6.75 percent, now expects headline inflation to average 4.5 percent in 2019, down from 4.8 percent.