South Africa likely to be out of recession soon: Sarb
South Africa is likely to return to a growing economy in the second quarter of this year, says Reserve Bank Governor, Lesetja Kganyago, and will be out of a recession by the end of the year.
Speaking at the South African Reserve Bank’s annual general meeting on Friday (28 July) Kganyago said that he believes that the “worst is behind us”, and South Africa’s economy will continue to improve into the latter half of 2017.
South Africa entered into a technical recession at the end of the first quarter of 2017, following two quarters of economic decline in Q4 2016 and Q1 2017.
Data for the second quarter will be released in early September.
Despite the expected return to positive growth for South Africa, the Sarb governor said that not everything is peachy.
Notably, the Sarb’s growth forecast was revised down significantly, as communicated at the recent meeting of the MPC7.
Growth of just 0.5% is now forecast for this year, rising to 1.3% and 1.5% respectively in the next two years. This is clearly too low to make any meaningful inroads on unemployment, Kganyago said.
Another point of concern is around inflation, he said, as well as the volatility of the rand.
“Despite the improved outlook, the MPC is still concerned that inflation expectations remain sticky at the upper end of the target range. As indicated in our post-MPC statement, we would prefer expectations to be anchored closer to the midpoint of the range.”
“Furthermore, we are aware that the inflation outlook can change quickly in the event of supply-side shocks. At this point, however, we view the risks to the inflation outlook to be broadly balanced.”
The main risk to the inflation outlook has, for some time, been the exchange rate Kganyago said. During the past year, while volatile, the rand has been relatively resilient, considering the adverse shocks it has had to face.
At current levels, it is still stronger than it was at this time last year, he noted.
High levels of unemployment, low growth, and market volatility are key points raised by all ratings agencies as some of the biggest risks facing the South African economy.
Two of the three major ratings agencies rate South Africa’s foreign debt as sub-investment grade (“junk”), but only one has the same rating for local debt.
You can read Kganyago’s full address, here.
Read: How South Africans are getting battered by the recession and high unemployment
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