The South African Reserve Bank’s latest forecast is for 0% growth in 2016 compared with 0,6% previously, Reserve Bank governor Lesetja Kganyago cautioned during his rates announcement on Thursday.
The Bank’s Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 7%.
Kganyago emphasised that the domestic economic growth outlook remains extremely challenging following the contraction in GDP in the first quarter of 2016.
“Although this is anticipated to have been the low point of the cycle, the recovery is expected to be weak,” he added.
Growth rates of 1,1% and 1,5% are now forecast for the next two years, down from 1,3% and 1,7% previously. The Bank’s estimate of potential output has been revised down marginally to 1,4% in 2016, rising to 1,7% in 2018.
According to Kganyago, this growth outlook is corroborated by the persistent negative trend in the Reserve Bank’s leading indicator of economic activity.
He said business confidence remains low with the RMB/BER business confidence indicator falling to its lowest level since 2009 in the second quarter of 2016.
Kganyago said recent economic data suggest that positive growth was recorded in the second quarter, with the mining and manufacturing sectors expected to add positively to growth.
The real value of building plans passed is, in his view, indicative of some improvement in the sector, particularly with respect to residential construction. He pointed out, however, this is not reflected in the FNB/BER building confidence index which declined further in the second quarter.
“Underlying the negative performance of the economy during the first quarter was the sharp contraction in growth in gross fixed capital formation for the second consecutive quarter, by both the private sector and general government,” said Kganyago.
He also pointed to consumption expenditure by households is expected to remain subdued given the low consumer confidence, high debt levels, rising costs of debt servicing, and slow employment growth.
There are also no clear signs of a recovery in the agricultural sector, and food price inflation is expected to remain elevated for some time.
David Maynier, Democratic Alliance shadow minister of finance, said the fact that the Reserve Bank has revised its economic growth forecast for 2016 down to “zero percent” should be a wake-up call for government, “which now needs to get its act together and implement the structural reforms necessary to boost economic growth and create jobs in South Africa”.