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South Africa: Mboweni, Manuel Bid to Calm Nerves
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Business Day (Johannesburg)
20 March 2008
Posted to the web 20 March 2008
Linda Ensor and Mariam Isa
Johannesburg
FINANCE Minister Trevor Manuel and Reserve Bank Governor Tito Mboweni yesterday moved to dispel concerns over the fallout on local markets from a looming US recession, rising oil and food prices and a global credit shortage.
Manuel said he was still confident the economy would grow by 4% this year, while Mboweni noted that SA's financial system was robust and relatively sheltered from the problems that helped topple US investment bank Bear Stearns .
But both officials warned there would be more fallout from problems in the risky US home loans market, which has fuelled a fresh bout of global risk aversion, prompting large capital outflows from local share and bond markets.
"The global financial system is in deep trouble and we have not yet seen the fallout of the subprime mortgage crisis," Manuel told Parliament.
"The world economy is taking strain but our shock-absorbers are helping to cushion against the worst effects of this crisis.
"We are confident that we will meet the 4% growth rate and that the economy will accelerate in the outer years of our medium-term horizon," he said.
The treasury last month revised its growth forecast for this year down to 4% from 4,5%, after taking into account the global slowdown and the domestic power crisis, which has curbed mining output.
But many analysts predict economic growth will moderate more sharply to 3%-4% this year, after expanding by about 5% for four years in a row.
Mboweni said things would get worse before they improved, but SA was in a good position to face the "immense" challenges from the global environment. "I don't think there will be a risk of a crisis in SA," he said after the release of the Bank's quarterly bulletin for March.
"The economy might slow down quite a bit, but it is still growing at a robust pace."
Mboweni said a particular concern was the difficulty that global banks were experiencing in obtaining funds from the interbank market.
"We are fortunate in the sense that our interbank market is working, the financial system is performing well, it is robust and its liquidity is adequate, from all that we can pick up.
"But we must not become complacent, we must remain vigilant to ensure that whatever happens is based on assets which can be verified," he said.
Manuel pointed out that SA's large current account deficit made the country vulnerable to global shocks as it required high levels of foreign investment.
Foreign investors have sold an estimated net R35bn of local shares and bonds so far this year, sparking concern over how the shortfall on the country's broadest measure of trade in goods and services will be financed.
Data from the Bank yesterday showed the gap widened to 7,3% of gross domestic product (GDP) last year -- a 36-year peak -- from 6,5% of GDP in 2006.
Mboweni said as long as SA received foreign direct investment and macroeconomic policy stayed in place, sentiment towards the country would improve.
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The weaker rand would act as a shock absorber for the deficit, which was still being comfortably financed.
Manuel defended the policy of inflation targeting, which he said was an important anchor to steady SA's economy. "We cannot, at the first signs of stress, abandon our anchor," he said.
Johan van den Heever, the Bank's head of research, told reporters there were many ways in which the current account deficit could be financed.
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