admin“The economy is facing a difficult time as it is buffeted by both global and domestic challenges,” the central bank said in its annual report released in Pretoria today.
“The outlook is poor following the 0,9 percent annualised growth rate in the first quarter.”
Mining strikes, Europe’s lower demand for exports and a weaker rand have cut confidence and curbed economic growth.
The Reserve Bank lowered its growth forecast this year to 2,4 percent from 2,7 percent after Africa’s largest economy expanded at the slowest pace since a 2009 recession in the first quarter.
Policymakers kept the benchmark interest rate at 5 percent last month to help curb an inflation rate near the top of its 3 percent to 6 percent target band, while supporting economic growth.
Inflation slowed for the first time in four months to 5,6 percent in May. The bank is forecasting the rate may temporarily exceed 6 percent this quarter.
“We are delighted if you can have lower inflation,” Governor Gill Marcus told reporters in Pretoria last week. The data is “very volatile” though, she said.
The rand has dropped 15 percent against the dollar this year, the worst performance of 16 major currencies tracked by Bloomberg.
It slid 0,6 percent to 10 0053 per dollar by 2:43pm in Johannesburg.
The US Federal Reserve’s plan to reduce the amount of bonds it purchases to support the economic recovery in the economy has curbed investors’ appetite for emerging-market assets.
“The markets have built up so much expectations, they are overshooting,” Marcus said.
“What you are seeing now is a reaction that could be the next mutation that affects emerging markets.”
Foreign investors sold a net 6,7 billion rand (US$670 million) of bonds this month through June 26 after 4,71 billion rand left the market in May, the first monthly outflow in a year, according to data from the Johannesburg Stock Exchange.
The rand has also come under pressure from a widening deficit on the current account, the broadest measure of trade in goods and services, which reached 5,8 percent of gross domestic product in the first quarter.
The trade gap narrowed to 11 billion rand in May from 15 billion rand in the previous month, the South African Revenue Service said last week.
“We question whether the gains will be sustained,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in an e-mailed note to clients.
“South Africa still needs to see much more export momentum for a meaningful improvement in its trade profile.” – Bloomberg.
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