Economic outlook sunnier with risks of storms: SA Reserve Bank
June 4, 2014, 6:29 am

The Central Bank lowered its economic growth outlook for South Africa for 2014 from 3% in November to 2.1% in May [AP]

This contraction was largely due to the protracted and ongoing platinum mining strike that started in the last week in January and although a task force has been assembled by government to bring an end to the strike, no breakthrough has yet been accomplished. The industry body, the Chamber of Mines, estimates that miners have already lost 9 billion rand in wages, to which must be added the loss of revenue from export sales, as well as taxes foregone. Labour accounts for around a third of revenue so the total revenue loss is near 30 billion rand. As the Chamber previously estimated that the linkage effect of mining on the rest of the economy as being of the order of one to ten, then a conservative estimate of the impact of the mining strike is 300 billion rand, or around 9 per cent of the 3.4 trillion rand 2013 gross domestic product.

The SARB said that “global growth is improving, but progress is incremental and the outlook is suffused with uncertainty.” In addition it noted that “domestic demand has been feeble”, which is why it lowered its economic growth outlook for South Africa for 2014 from 3.0 per cent in November 2013 to only 2.1 per cent in May 2014. Over the same time period it has hardly budged on its 2015 forecast which has only been reduced from 3.4 per cent to 3.1 per cent.

In its analysis of its own economic forecasts, it said that growth since 2011 has lagged forecast largely due to anaemic growth in the euro rea, which has constrained exports, while domestically it has been constrained by several industrial disputes in various sectors such as transport, manufacturing and mining, as well as the ongoing electricity supply crisis.

In March 2014, state-utility Eskom imposed the first national load shedding since 2008 and at the time, former Finance Minister Pravin Gordhan told The BRICS Post that this did not mean that South Africa would enter a recession. In fact as a former pharmacist he would prescribe anti-depressants for the people who were depressed about the outlook for South Africa.

Current Finance Minister Nhlanhla Nene, who has been Deputy Finance Minister since 2008, was equally upbeat at the Africa Rising conference in Maputo Mozambique last week, saying that the contraction in the first quarter was only temporary and he doubted whether there would be another contraction in the current quarter, a view shared by most economists.

The MPR notes that the risks to the central inflation projection are viewed by the SARB as being skewed slightly to the upside. The uncertainty regarding future developments in cost-push factors such as food and energy, as well as the exchange rate, pose an upside risk to the outlook, which in the view of the SARB more than offsets the downside risks from possible contagion effects from the European crisis and associated slow growth.

For many years, central banks have focused primarily on their monetary policy objective and introduced inflation targeting as a panacea to insure price stability. However, the Great Recession that began in 2007 has seen a rethink, with an increased emphasis on financial stability.

The increasing interdependence of economies and interconnectedness of the global financial system has led to significant financial stability initiatives culminating in the Basel Three proposals. These structured initiatives have developed standards that are material to the strengthening of the global financial system.

The cost of the recent financial crisis has been significant. According to the International Monetary Fund direct costs of banking crises in the past 15 years exceeded 10% of the gross domestic product in more than a dozen cases.South Africa has weathered the Great Recession better than most economies due in part to lessons learnt from previous crises, which is why its financial system is rated amongst the most stable in the world.

Helmo Preuss in Pretoria for The BRICS Post