05-06-2013, 11:46 AM
Pretoria – Labour unrest and above inflation wage demands from the mining and agricultural sectors will put a dent on economic growth.
According to the Reserve Bank’s Monetary Policy Committee, domestic economic and political developments have contributed to the value of the rand plummeting to a four-year low of R9.66 to the US dollar, something that could spike inflation upwards.
Releasing the Monetary Policy Review on Tuesday night following a meeting in May, the committee warned that while external factors usually influenced the strength or weakness of the rand, the local currency – which has come under the spotlight in the past few days – has increasingly become sensitive to domestic developments.
“Labour markets in South Africa remained constrained by subdued economic growth and increased instability as unrest and wage demands spread from mining to agriculture and beyond.
“These developments pose substantial risks to the outlook for economic growth, employment and inflation.
“Unit labour cost growth – a primary driver of inflation outlook – accelerated in 2012 to an average rate slightly higher than the upper band of the inflation target range, as increases in remuneration outpaced the marginal increases in productivity,†the committee said in its review report.
The committee’s economic outlook comes just days after Statistics SA (Stats SA) announced that economic growth had slowed down to 0.9% in the first quarter of 2013, compared to an increase of 2.1% in the last quarter of 2012.
While government requires a growth of 7% to put a dent in the high unemployment, the trend, according to Statistician-General Pali Lehohla, could lead to a loss of more jobs.
Despite stoppages in mining production brought about by recent strikes, government remains confident that its interventions and mediation would improve investor confidence and soften the blow on the economic outlook.
Late week, the rand took a knock in what the Reserve Bank later said was an exaggerated fluctuation.
The committee said on Tuesday night: “In recent months, domestic factors have played a critical role in driving down the currency.
“Resurgent labour market instability, the effect of work stoppages on exports, the trade deficit and a ratings downgrade by Fitch in January 2013 (following that of Moody’s in September, and Standard and Poor’s (S&P) in October 2012) contributed strongly towards a 14.3 percent depreciation against the US dollar from 1 January to date.
“These factors and underlying macroeconomic risks in the form of twin deficits continue to differentiate South Africa from other emerging markets, many of which exhibit significantly better growth and macroeconomic fundamentals,†the committee said. – SAnews.gov.za
According to the Reserve Bank’s Monetary Policy Committee, domestic economic and political developments have contributed to the value of the rand plummeting to a four-year low of R9.66 to the US dollar, something that could spike inflation upwards.
Releasing the Monetary Policy Review on Tuesday night following a meeting in May, the committee warned that while external factors usually influenced the strength or weakness of the rand, the local currency – which has come under the spotlight in the past few days – has increasingly become sensitive to domestic developments.
“Labour markets in South Africa remained constrained by subdued economic growth and increased instability as unrest and wage demands spread from mining to agriculture and beyond.
“These developments pose substantial risks to the outlook for economic growth, employment and inflation.
“Unit labour cost growth – a primary driver of inflation outlook – accelerated in 2012 to an average rate slightly higher than the upper band of the inflation target range, as increases in remuneration outpaced the marginal increases in productivity,†the committee said in its review report.
The committee’s economic outlook comes just days after Statistics SA (Stats SA) announced that economic growth had slowed down to 0.9% in the first quarter of 2013, compared to an increase of 2.1% in the last quarter of 2012.
While government requires a growth of 7% to put a dent in the high unemployment, the trend, according to Statistician-General Pali Lehohla, could lead to a loss of more jobs.
Despite stoppages in mining production brought about by recent strikes, government remains confident that its interventions and mediation would improve investor confidence and soften the blow on the economic outlook.
Late week, the rand took a knock in what the Reserve Bank later said was an exaggerated fluctuation.
The committee said on Tuesday night: “In recent months, domestic factors have played a critical role in driving down the currency.
“Resurgent labour market instability, the effect of work stoppages on exports, the trade deficit and a ratings downgrade by Fitch in January 2013 (following that of Moody’s in September, and Standard and Poor’s (S&P) in October 2012) contributed strongly towards a 14.3 percent depreciation against the US dollar from 1 January to date.
“These factors and underlying macroeconomic risks in the form of twin deficits continue to differentiate South Africa from other emerging markets, many of which exhibit significantly better growth and macroeconomic fundamentals,†the committee said. – SAnews.gov.za