THE Reserve Bank has painted a dim outlook for the economy, warning that there is a high probability of global growth and financial shocks that will affect South Africa.
Its remarks in a twice-yearly monetary policy review suggest that the Bank is deeply worried about weak growth despite rising inflation — which means that there is still a chance that it could cut interest rates again.
After the release of the review in Pretoria on Tuesday, monetary policy committee member Brian Kahn said it was difficult to say whether the Bank was more concerned about flagging growth or higher inflation. "We clearly are concerned about both ."
Recent economic data suggested that growth slowed in the third quarter of this year and pointed to a more "pessimistic" near-term outlook, the Bank said in its review. Industrial unrest in the mining sector would curb growth and suggested that employment prospects would worsen towards the end of this year.
"The impact will be exacerbated if confidence weakens significantly in other sectors of the economy," it said.
The Bank’s latest forecasts predict that the economy will grow 2.6% this year and 3.4% next year — which is above the Treasury’s latest estimates of 2.5% and 3.0 % respectively.
The Bank downplayed risks to the inflation outlook, despite news that headline consumer inflation rose to 5.5% in September from 5% in August. A weaker exchange rate, future wage developments, and food and oil prices were the main upside risks, but they would be offset by weaker confidence and growth.
"The risks to the overall inflation forecast are assessed to be more or less balanced," the Bank said.
It believed inflation would remain inside its 3%-6% target range to the end of 2014, converging at about 5% between next year and the year after that.
Core inflation — which excludes food, petrol and energy — was expected to remain "well contained", the Bank said.
Another member of the monetary policy committee, Rashad Cassim, said yesterday an overhaul of the weightings in the goods and services portion of the consumer price index was unlikely to affect headline inflation.
Statistics South Africa will publish new weights for the index next week.
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