Rough economic outlook painted at policy forum

ECONOMISTS painted a bleak picture of economic conditions in South Africa at a review by the Reserve Bank's monetary policy forum in Port Elizabeth yesterday.

Reserve Bank senior economist Shaun de Jager told business executives at the meeting, held at The Boardwalk Convention Centre, that a recession in South Africa was highly unlikely but not impossible.

He defined a recession as two consecutive quarters of annualised growth below 0%.

Although the first quarter of this year amounted to -0.6% in gross domestic product (GDP) growth, De Jager said there was a remote chance that the significant losses in the mining and manufacturing sectors would impact on the second quarter.

"All indicators are not looking good for domestic growth and it is certainly something the Reserve Bank is worried about," he said.

Answering a question from the audience about when last the Reserve Bank was as concerned about the economy as it was now, De Jager said the bank was always concerned to the present degree.

"We are trying to do our best for the economy of the country and want to do what is most conducive to employment.

"Strike action and labour issues are certainly not helping the cause. Between the manufacturing and mining sectors we are basically subtracting 2% off growth just in those sectors alone. It gives you some indication to what extent these sectors do play a role."

Inflation would remain out of target for the next four quarters – from the second quarter of this year to at least the first quarter of next year – and then it would be "touch and go" for the second quarter, he said.

Reserve Bank assistant economist Shaista Amod said since last year, inflation had been driven primarily by high food and petrol costs.

Another key risk to domestic growth was presented by electricity shortages, which affected GDP in the first quarter of this year through blackouts that were experienced across South Africa. The mining and manufacturing sectors, as well as future investments, were affected by electricity shortages, Amod said.

Another inflation risk was higher wage demands, which would be experienced in an already antagonistic labour environment.

Reserve Bank economist Siobhan Redford said low household expenditure was partly due to weak asset performance.

House prices adjusted for inflation had only recently exceeded the 2007 highs before the 2009 recession hit.

Redford said many South African households were feeling the pinch because of unsecured lending and over-indebtedness. - Cindy Preller