SARB Public Lecture

On 6 March 2019, the Dean of the Faculty of Economic and Management Sciences, Prof Ingrid Woolard, and the Director of the Bureau for Economic Research, Prof Johann Kirsten hosted a public lecture by the Governor of the South African Reserve Bank, Dr Lesetja Kganyago. The title of his speech was Independence and policy flexibility: ‘Why should central banks be independent?’

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The FNB/BER Civil Confidence Index gained one point to register a still very depressed level of 18 in 2018Q4. Underpinning the low confidence was a significant decline in construction activity as well as a deterioration in order books.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined to 46.2 index points in February 2019, down from 49.9 in January. Despite the decline, the average recorded during the first two months of the first quarter of 2019 is slightly above the average seen in the fourth quarter of 2018. Two of the PMI’s main subcomponents came in above the neutral 50-point mark, while three subcomponents registered below that level.

A broad-based weakening in activity pushed confidence down to worrying lows. The RMB/BER BCI declined by a further three points to 28 in the first quarter of 2019. This is the lowest level since the 27 index points recorded in the second quarter of 2017, and before that, the deep recession of 2009. Striking in the first quarter results is how broad-based the weakness in activity has become. Since taking over the reins, President Ramaphosa has launched several initiatives to help reverse South Africa’s decline. But more than this is necessary to get South Africa out of its low-growth bind. Forceful, and in some instances, unpopular structural reforms must also form part of the mix.

After falling sharply in the third quarter of 2018, the FNB/BER Consumer Confidence Index (CCI) held steady during 2018Q4. Consumer sentiment settled at a much lower level during the second half of 2018 compared to the extraordinarily positive numbers booked at the height of Ramaphoria. Nevertheless, the latest reading is still above the long-run average reading for the CCI, suggesting that most consumers are fairly optimistic with respect to the outlook for the SA economy and their own household finances. However, order for a more enduring and significant improvement in consumer spending to take hold, household income and credit growth will also need to accelerate.