Global Economic Landscape Poses New Challenges—SARB Governor Kganyago Reflects on Recovery and Risks

Speaking at the South African Reserve Bank's 104th annual General Meeting, Governor Lesetja Kganyago provided a sobering overview of the current and upcoming economic hurdles facing the globe and South Africa. He remarked on the delicate path of recovery from the pandemic, marred by persistent inflationary pressures and unprecedented public debt levels. Tapping into technology's dual-edged sword, Kganyago pointed out the threats to cybersecurity and the potential for significant productivity gains.

The global economy's recovery, while steady, is compromised by concerns surrounding inflation and the gridlock of abating price rises. Despite central banks' commitment to retargeting inflation within the desired range, the constriction of monetary policy and a gradual resolution of supply chain issues have merely slowed the pace of global disinflation. The struggle is shared by both developed and emerging markets, albeit for different reasons, including wage increments, pent-up service demand, hefty fiscal burdens, and persistent currency weakness.

The economic resilience is nevertheless evident in the higher than anticipated global growth rate of 3.3% in 2023. The span of individual economic performances is wide, with many falling short of the pre-pandemic trend lines due to protectionist trade measures, stringent financial climates, and policy unpredictability.

Turning to domestic matters, Kganyago highlighted South Africa's remarkable recovery of over two million jobs lost to COVID-19, but emphasized the lack of sufficient job creation to balance the increasing labor force, resulting in a staggering 32.9% unemployment rate in the first quarter of this year. Economic growth in South Africa lingered at a lethargic 0.7% in 2023, trailing other emerging markets. Issues such as load shedding and logistic hindrances weigh heavily on businesses and household spending.

Despite these challenges, South Africa's economic forecast is set to improve, anticipating a growth of 1.1% this year and a hopeful rise to 1.7% by 2026, fortified by the revival of household spending and investment as energy and logistics constraints abate.

In line with global trends, South Africa has observed a deceleration in inflation; however, the inconsistency in the underlying components highlights the volatility and unpredictability in the path to stable prices. In light of fluctuant monthly pressures from fuel, food, and service prices, the SARB sees core inflation averaging 4.6% in 2023, easing down from 4.8% in the previous year. Forecasters predict headline inflation to settle at around 4.9% this year, aligning with softened food and fuel inflation, and achieving the midpoint target by 2025 and 2026.

In closing, Governor Kganyago indicated that the SARB, cognizant of the surrounding economic volatility and risks, has resolved to maintain the current repo rate of 8.25% set in May of 2023. The MPC's decision underpins their strategic approach to anchor inflation expectations robustly within the target band.