According to the Reserve Bank’s Monetary Policy Review, global and domestic economic recovery is robust.
However, there is still uncertainty about what the future sources of growth will be in the long-term.
The Bank notes that the easing of lockdown restrictions and the boom in commodity prices has supported a fast recovery in the local economy.
But it also says that increased demand, coupled with supply bottlenecks could keep price pressures elevated. The Reserve Bank has warned commodity-producing economies like South Africa against complacency due to strong commodity prices as the trend is expected not to last.
Governor Lesetja Kganyago says the rate of economic recovery depends on the rate of vaccination.
“In South Africa, domestic factors have countered global inflationary factors, enabling the MPC to keep rates at the current levels. We should be able to rebuild the policy space as the economy completes its recovery. Speedier vaccination and implementation of the structural reforms should further strengthen the recovery and support more advanced and sustainable growth,” says Kganyago.
Head of Research at the Reserve Bank Chris Loewald says the country’s GDP has shown robust improvement but has performed poorly on a sector-by-sector basis.
He says the primary sector has been the main driver of growth, while the secondary sector lags behind.
“The construction sector which is a relatively small component of the economy but features heavily in the economy remains really weak indeed. Other sectors like the transport sector have struggled to get back to those levels, and of course the tourism and hospitality industry remains very weak still,” says Loewald.
Loewald adds that total compensation has improved.
However, constraints could be identified when looking at each sector individually.
“The companies that are trailing are struggling to raise their compensation levels and of course struggling to re-hire people and this has got implications for the economy. We’ve seen stronger household number in part because compensation numbers have come back,” he adds.
The Bank notes that the current account surplus has been bolstered lower imports and stronger commodity prices.
Local economy recovery
Finance Minister Enoch Godongwana says it will take public and private sector investment to achieve an infrastructure-led economic recovery.
Godongwana says government will need to remove any perceived barriers to investment while formulating instruments through which the private sector can invest in public infrastructure.
Godongwana outlines more measures to improve the local economy: