19 November 2009
South Africa’s recovery from the global economic downturn appears to be lagging, says the South African Reserve Bank, while adding that there are convincing signs that the low point of the current growth cycle has been reached and that positive growth will be recorded for the fourth quarter of 2009.
Improved export performance
The global recovery has already been reflected in an improved export performance in the past months.
“However, the domestic recovery is expected to be hesitant, driven by the inventory cycle and fixed investment projects,” the Bank says in its November Policy Review, released on Wednesday. “Consumption expenditure is expected to take a while longer to recover.”
The Bank noted that the recovery was not expected to be smooth across all countries and regions, adding that a number of risks still persisted.
The global recovery would also be dependent to a certain extent on the recovery of consumption expenditure in advanced economies.
According to the Reserve Bank, the global inflation environment remains benign, with wide output gaps as well as lower commodity prices contributing to this outcome.
Domestic inflation has also responded to the weak demand conditions, and the inflation rate has reached a level marginally above the inflation target range, the Bank said.
South Africa’s interest rate has been cut by 500 basis points since December 2008. At its last meeting for the year, held earlier this week, Governor Gill Marcus said that the Bank’s monetary policy committee (MPC) had decided to keep the repo rate unchanged at seven percent, leaving SA’s prime interest rate at 10.5%.
“By adopting a forward-looking flexible approach, the MPC was able to provide some stimulus to the slowing economy, while maintaining the focus on its price stability objective,” the Reserve Bank said.
“Even though some risks to the inflation outlook remain, the current monetary policy stance is deemed adequate to moderate inflation further to within the target range, while simultaneously allowing for the resumption of a positive growth trajectory.”