SA may just escape recession: Kganyago
Global trade war a threat to emerging markets
Reserve Bank governor Lesetja Kganyago managed a mildly positive note at the bank’s AGM on Friday, saying that SA was likely to avoid a recession.
However, he warned that US President Donald Trump's trade war would hurt emerging markets.
Instead, he forecasts a modest improvement in growth in the second quarter of the year.
Africa’s second-biggest economy contracted by 2.2% in the first three months of the year, its biggest contraction since 2009.
Two consecutive quarters of contraction is a textbook definition of a recession.
Earlier this month, the bank lowered its growth outlook for this year to 1.2% from 1.7% and expects GDP to rise to 1.9% next year and 2% in 2020.
“At these growth rates we cannot expect to make appreciable inroads into the unemployment problem in the country,” Kganyago said at the bank’s AGM in Pretoria.
Kganyago warned about the rise of the global trade war that has been stoked by US President Donald Trump and its possible effect on the local economy, further depressing the growth outlook.
“No one is going to be a winner if there is a full-blown trade war.
“Let's be clear, the countries that are going to suffer the most are going to be small, emergingmarket economies because they rely on producing things to sell in those advanced economies,” he told Business Times.
The trade war sparked by Trump’s America First policy has already led to a decline in global trade, which in April contracted at its fastest pace since May 2015.
At the Brics Business Forum this week, Chinese President Xi Jinping urged Brics countries to reject a global trade war.
The anaemic growth environment is expected to convince the Reserve Bank to keep interest rates unchanged, at least until the middle of next year, when cost pressures and wage agreements may lead to inflation rising, economists said.
Emerging market currencies have come under severe pressure over the past few months as investors fret about the health of these economies in light of the trade war and a normalisation of monetary policy by the US Federal Reserve and the European Central Bank.
The rand has weakened 6.5% against the US dollar, which has raised inflationary fears as the price of oil has risen.
The Argentinian peso has plunged more than 18% and the Turkish lira 12% against the greenback.
Despite the vulnerable rand, Kganyago said inflation was expected to remain within the central bank's 3% to 6% target range over the next two years.
Recent forecasts suggest that inflation would average 4.8% this year but rise to 5.6% next year and 5.4% in 2020.
“This upward drift will not help in our quest to get inflation and inflation expectations anchored closer to the midpoint of the target range,” Kganyago said.
Nedbank forecasts a very mild hiking cycle in the coming year, but on the assumption that the rand remained below the R14 to the dollar mark.
Lumkile Mondi, a senior Wits economist, noted that the central bank had increased its expectation of rate hikes from four to five up to 2020. –