PRESSURE MOUNTS FOR ECONOMY STIMULUS
PRESSURE is mounting on President Cyril Ramaphosa to present a stimulus package that will arrest the economy’s decline after the South African Reserve Bank (Sarb) and the Organisation for Economic Co-operation and Development (OECD) yesterday both slashed the country’s growth outlook.
The bank said it now forecasts that the economy would grow a modest 0.7 percent this year, down from 1.2 percent in July.
Sarb governor Lesetja Kganyago said the forecast for 2019 and 2020 remained unchanged at 1.9 percent and 2 percent respectively.
“At these growth rates, the negative output gap is wider in the near term, but is still expected to close by the end of 2020 as gross domestic product (GDP) growth rates exceed potential growth,” Kganyago said.
This was the second successive meeting of the central bank to take a dim view of the economy.
The dispirited outlook was supported by the OECD, which cut South Africa’s growth forecast by half from 1.9 percent previously to 0.9 percent.
“Growth prospects have been revised down in South Africa, with the economy slipping into recession in the first half of 2018. Confidence remains low, reflecting uncertainty about the future pace of reforms, and financial conditions have tightened,” OECD said.
The Paris-based institution earlier this week said South Africa’s economy was the worst performer among the more than 35 economies it tracks.
On Wednesday, the cabinet approved a stimulus package to revive the floundering economy. Ramaphosa was expected to lay out the finer details this morning. In his address to Cosatu this week, Ramaphosa said the package would reprioritise spending within the existing fiscal framework towards activities that would reignite economic activity.
Sarb’s monetary policy committee (MPC) kept the repo rate unchanged at 6.50 percent in a close call.
The bank, however, warned that the inflation trajectory was moving further away from the mid-point of the target range.
The rand, which had largely priced in the no-hike decision, maintained its earlier gains and was bid at R14.45 against the dollar by 5pm.
Four members of the committee preferred an unchanged stance, while three argued for a 25 basis point increase.
“If the hawks couldn’t swing today’s vote, it’s unlikely they will succeed in pushing for a rate hike over the next six months or so – with the rand stabilising and inflation easing, pressure for a hike should fade,” said John Ashbourne, senior emerging markets economist at Capital Economics.
The Bureau for Economic Research said yesterday that inflation would inch up to 5.3 percent this year, 5.6 percent next and 5.6 percent in 2020. The body was commissioned by Sarb in 2001 to conduct a quarterly survey to measure inflation expectations and other macro-economic variables related to inflation.
“While the central bank’s primary mandate is price stability, they remain mindful of the weak domestic growth environment, and as such, kept rates unchanged in the hope that doing so can assist a very modest growth recovery in the second half of 2018,” said Mamello Matikinca, FNB’s chief economist.