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South Africa Warned of Deeper Recession

South Africa Warned of Deeper RecessionSouth Africa Warned of Deeper Recession

South African Reserve Bank Governor Lesetja Kganyago on Tuesday warned that the country’s economic recession could deepen unless there was policy certainty on mining and agriculture, the two sectors that contributed to growth in the first quarter.

“At the moment these two sectors are facing policy uncertainty, which means we can go into an even deeper recession unless certainty is restored, African News Agency reported.

“The sooner the policy is clear the better it will be for our socio-economic well-being,” Kganyago told parliament’s standing committee on finance in a briefing on the role of the bank and the outlook for the economy.

He said a mining company could not be expected to make a 30-year investment if policy changed every time a new minister was appointed in the portfolio. “Ditto is you are a farmer and you must worry about the long-term. The same if you are a factory owner.”

Kganyago noted that South Africa and Venezuela were the only large economies currently in recession in spite of an upswing in the world economy. It meant that South Africa’s woes could not merely be blamed on the global economic climate but pointed to problems that were specific to the country. “Our problems are idiosyncratic,” he said.

He said it was too early to tell whether the recent downgrades of the country’s credit to junk would push the economy into a recession. “It’s too early to tell if we are in a recession,” Kganyago said at the regulator’s Monetary Policy Review on Monday.

“The environment is pretty fluid ... With the downgrades, we expect the cost of capital to rise and that rising cost of capital could force businesses that wanted to invest to rethink some of their projects. That will have an impact on growth,” he said.

Kganyago said he is confident that South Africa’s economic growth is likely to resume in the second quarter of 2017.

The last quarter of 2016 and the first quarter of 2017 showed contraction in the economy, which pushed the economy into a recession.

“We believe that the worst is behind us and that growth in the second quarter of this year will be positive,” Kganyago said.

The last two consecutive quarters pushed the country into a technical recession—the first in eight years—which exerted pressure on a government grappling with corruption allegations and credit rating cuts.

Kganyago said the past year had seen the worst domestic growth performance since the recession during the global financial crisis. The economy grew at a paltry 0.3% last year and recently recorded two consecutive quarters of negative growth.

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