South Africa economy nears collapse

  1. Posted on Wednesday 8 April 2009 - 07:25
    Mernat
    Image of Mernat
    Mernat Mafirakurewa, AfricaNews reporter in Johannesburg, South Africa Photo: Bas Vlugt
    South African economy may shrink in the first quarter of the year. Economic analysts say it is a development that will officially send Africa's biggest economy into a recession. Reserve Bank Governor Tito Mboweni on Tuesday said he "might not be surprised to see another quarter of negative growth."
    Road trip from Johannesburg to Lehututu, photo by Bas Vlugt
    SA’s economy shrank by 1.8% in the fourth quarter of 2008 and weak manufacturing and mining output have indicated it heading for its first recession in 17 years, although the Treasury is still optimistic this will be avoided.

    “There might be a bit of a difference of opinion between me and the finance minister (Trevor Manuel),” Mboweni told members of the Johannesburg Country Club.

    “He’s confident we won’t see another quarter of negative growth. We are of the view that we might not be surprised to see another quarter of negative growth ... technically that’s a recession.” Mboweni said government’s infrastructure spending plan, the Reserve Bank’s inflation targeting policy and fiscal discipline had provided a buffer against the global economic crisis.

    Mboweni was however concerned about electricity tariff increases, saying there was no doubt “there would be negative impact on inflation, it is something we need to watch very carefully.”

    He said there was little room to shift economic policy after elections on April 22.
    Inflation has been above the central bank’s 3 to 6% target band since it breached it in April 2007. It peaked in August 2008 and stood at 8.6% year-on-year in February.

    Mboweni said the inflation outlook had improved and headline CPI was likely to come back to the target band in the third quarter, and then pierce it briefly before settling back in the band in 2010.

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