AGM Governor’s Address to the Shareholders of the South African Reserve Bank at the ninety-sixth annual Ordinary General Meeting (AGM) held on Friday, 29 July 2016
The past year has again been a challenging one for the Bank against the backdrop of a hesitant recovery in the global economy and a slowing domestic economy. While the recent decision by the UK to leave the European Union (Brexit) has raised the risks to the outlook, the extent of the spillover effects are still unclear. Much will depend on the speed and terms of the disengagement. At this stage we do not know which of a number of possible scenarios will unfold.
The financial markets have stabilised following the initial volatile response to the decision. However, it is likely that growth in the UK, and to a lesser extent in the EU, will be negatively affected, as a protracted period of uncertainty is expected to undermine both business and consumer confidence. As a consequence, growth forecasts have already been revised down.
This comes at a time when the eurozone growth prospects, although still muted, had improved steadily during the past year, partly in response to European Central Bank monetary stimulus.
The US economic recovery appeared to be more sustained during the past year with consistent improvements in the labour market. This was despite a slowdown in the first quarter, which was viewed as temporary. The performance of the economy improved since then, but some negative spillovers from Brexit are expected.
Despite sustained fiscal and monetary stimulus in Japan, economic growth was marginally positive.
While the past year was slightly more favourable for advanced economies, the same cannot be said for emerging markets, although there were divergent experiences. The growth slowdown in China continued, accompanied by increased volatility in domestic financial markets.
This was partly in response to policy changes and persistent concerns regarding the stability of the financial sector. The slower growth continued to impact negatively on commodity prices, further complicating the outlook for commodity-producing emerging markets.
More recently, the economy appears to have responded to renewed stimulus measures, and risks of a hard landing have abated. This has also helped to stabilise commodity prices. Both Brazil and Russia slid into recession during this period and continue to contract. By contrast, India experienced high growth following a number of structural reforms.
The slowdown in sub-Saharan Africa, in response to lower commodity prices and severe drought conditions in the southern part of the region in particular is of some concern. In its recent World Economic Outlook update, the IMF downgraded sub-Saharan growth for 2016 by 1,4 percentage points to 1,6 per cent.
This follows a number of years of growth rates averaging around 5 per cent. The region has become a major export destination for South African manufactured goods, and a growth slowdown could impact negatively on these exports. Read more [PDF]
