Low interest rates are not the only solution for economic growth, SA Reserve Bank governor Gill Marcus has said.
“Despite what some would like us to believe, monetary policy is not the panacea for growth. Had low interest rates been all that was needed, the global economy would be in overdrive,” Marcus today told a conference hosted by the Bureau of Economic Research in Johannesburg.
“Monetary policy has prevented the global economy from going into a free fall, but it is no substitute for structural reforms that are needed.”
Marcus said South Africa faced problems which required coordinated and coherent policy responses, which were largely beyond the scope of monetary policy.
Since the advent of democracy, the South African economy had grown by an average of 3.5% a year. But the recent dismal economic growth was an indicator of deep-rooted structural problems, which manifested in high levels of unemployment and inequality.
“These in turn are caused by weak competitiveness, a poor skills profile and an educational system that is dysfunctional, low domestic savings … and spatial distortions.”
Marcus said the country needed clear action to stabilise the labour-relations environment. Government needed to be decisive, act coherently, and exhibit strong leadership from the top.
Since the 2008 financial crisis, the mandate for central banks had generally been broadened, Marcus said.
“While price stability remains the core objective of central banks, the persistence of the global crisis has raised expectations about what central banks can and should do … regarding economic growth and financial stability.”
Marcus said the South African economy recovered relatively quickly from the recession and grew by 3.1% in 2010 and 3.5% in 2011.
It moderated to 2.5% in 2012 and lagged that of emerging markets. In the first quarter of 2013, South African gross domestic product (GDP) grew by just 0.9%.
Marcus said employment was still below pre-recession levels, and wildcat labour disputes and high wage demands in the mining sector negatively impacted South African exports.
“These developments and vulnerabilities have adversely affected both domestic and international business confidence and investor sentiment towards South Africa, and this has been reflected in the currency, which has depreciated by about 12% … since the beginning of this year.”
She said South Africa had to deal with its internal issues in order to be part of African growth.
“We’ve got so much going for us. Our region, sub-Saharan Africa, is expected to grow at 5% plus for the next few years. South Africa is an integral part of that growth story and we need to sort out our internal issues in a manner that address our real problems,” she said.
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