The South African economy is unlikely to fall into a recession in the upcoming second quarter, the Reserve Bank said this week.
In its June Monetary Policy Review (MPR) document, the central bank said that the domestic economy has suffered several adverse supply shocks particularly from strike action as well as electricity shortages which led to negative first quarter growth.
Last week, Gross Domestic Product (GDP) data released by Statistics South Africa showed that seasonally adjusted GDP at market prices slumped at an annualised rate of 0.6% for the first quarter of 2014.
If there is a second consecutive quarter of negative economic growth this would mean a technical recession.
“The domestic economy has also suffered a number of adverse supply shocks, particularly from strike action and electricity shortages, culminating in negative first quarter growth in 2014 – the economy’s worst performance since the 2009 recession.
Although the second quarter is expected to show some improvement, the risks to the 2014 forecast are to the downside,” said the bank.
This decrease in growth, the worst since the second quarter of 2009 when the world’s economy dipped as a result of the global recession, comes after the GDP grew by an annualised rate of 3.8% in the fourth quarter of 2013.
At the Monetary Policy Committee (MPC) meeting in May, the bank revised down growth from 2.6% to 2.1%.
According to the Review, inflation is projected to be above the bank’s inflation target range for an extended period of time.
In April the Consumer Price Index (CPI) breached the bank’s 3 to 6% target range coming in at 6.1%.
“Overall, inflation in South Africa is projected to be above target for an extended period of time, with risks tilted towards higher inflation. Over the longer term, this necessitates higher interest rates, and therefore a tightening cycle,” noted the bank in the Review.