SA's recovery from recession lagging - Reserve Bank

Thursday, November 19, 2009

Pretoria - South Africa's recovery from the global economic downturn appears to be lagging, says the South African Reserve Bank (SARB).

However, there are convincing signs that the low point of the current growth cycle has been reached and that positive growth will resume by the fourth quarter of this year.

This is according to the Reserve Bank's November Policy Review released on Wednesday.

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. Consumption expenditure is expected to take a while longer to recover," explained the bank.

The central bank noted that the recovery was not expected to be smooth across all countries and regions, adding that a number of risks still persist.

The global recovery would also be dependent to a certain extent on the recovery of consumption expenditure in advanced economies.

According to the bank, the global inflation environment remains benign and wide output gaps as well as lower commodity prices have contributed 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, said the Reserve Bank.

To date South Africa's repo rate has been cut by 500 basis points since last December. At its last meeting for the year early this week Governor Gill Marcus said that the Monetary Policy Committee (MPC) had decided to keep the rate unchanged at seven percent.

"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. 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," said the SARB.