South Africa faced a tough economic environment over the past financial year as global growth continued to shift from emerging to advanced economies, SA Reserve Bank (SARB) governor Gill Marcus said on Wednesday.
“During the past year, the continuing global financial crisis entered a new phase, one that is no less challenging for South Africa than the previous phases,” she said in the bank’s annual report for 2013/2014, released on Wednesday.
Growth in China was expected to be moderate amid concerns about the shadow banking system, the overheating housing market, and tightening credit conditions.
“Its growth is now expected to be below 7.5%, lower than historically, and risks are seen to be on the downside,” she said.
“A further slowdown in China’s economy could have negative impacts on commodity prices, which would adversely affect South Africa’s terms of trade.”
From May last year to the end of January this year, emerging economy outflows increased and exchange rates were very volatile, as risk perceptions kept changing in response to data coming out of the United States.
“Once orderly tapering was priced into the market, the focus moved to the timing and speed of interest rate normalisation,” she said.
This issue would probably be a source of volatility and dominate financial markets for some time.
“The South African economy faced a very challenging environment against this global backdrop, with domestic issues adding to the difficulties,” Marcus said.
“The exchange rate moved broadly in line with a number of emerging-market economies in response to tapering and capital-flow reversals.”
The rand was also influenced by the widening deficit and had generally depreciated over the financial year, although with a high degree of volatility.
Marcus said the South African economy grew by 1.9% in 2013 and contracted 0.6% in the first quarter of 2014. The economic landscape was dominated by a “fraught” labour relations environment.
With household consumption expenditure and investment growth expected to slow amid weak business confidence, the SARB had lowered its growth forecast for 2014 to 2.1%.
“Under these circumstances, the high level of unemployment is expected to persist,” she said.
Given global and domestic risks, future changes in monetary policy stance would remain highly data-dependent.
“The MPC [monetary policy committee] will remain focused on its core mandate of price stability, but will also be mindful of the impact of its policy actions on economic growth,” Marcus said.
The bank had R560.7 billion in assets compared to R498.2 billion last year, of which foreign reserves made up R522.7 billion.
Notes and coins in circulation equalled R107.3bn, while operating costs increased from R3.68 billion last year to R4.22 billion this year.