Reserve Bank governor Lesetja Kganyago has warned that the spectre of the Great Depression is casting a shadow over the global economy, with a new surge in protectionism.

He was speaking in Pretoria, after announcing there will be no change in interest rates, and lowering his growth prediction for the SA economy from an earlier forecast of 1.7% for this year to 1.2%.

He was asked about growing trade tensions between the US and China in particular.

”In 2008, with the advent of the global financial crisis, global trade collapsed.  The focus of the global community was to re-start global trade flows.  We had to look at what were the constraints to trade growth,” said Kganyago.

”There was a decline in trade finance as a result of the collapse of the international financial system – financial systems in many of the developed countries.”

He contrasted the recovery from the 2008 crisis to the decades of depression after the crash in 1929.    

”What made the 1929 economic crisis really a depression was the surge in protectionism, which depressed global trade, ” said Kganyago.

”And what you are going to be having now, if these trade wars materialise and there is a rise of protectionism, (is that) small open economies will feel the pain immediately.

He argued that smaller economies, like that of South Africa ”are locked into global value chains, and when there is protectionism in the major markets, small open economies that depend on exports can no longer sell there. 

”Yes. We will be the immediate losers as small open economies.  But overall, as a global community, we will all be losers from the trade wars.

”No one can gain from this.  Once you start a war, you are not going to be the one to stop it, because everyone will then try to hit back.  

“Unfortunately, small open economies do not have the wherewithal to hit back - our markets are small.  We are dependent on having to sell into the global economy.  And many countries in the world are small open economies.”

The Governor warned that as well as an impact on growth, a rise in protectionism will lead to inflation, as competition is stifled.

North West University’s Professor Raymond Parsons expressed concern at the Reserve Bank’s Monetary Policy Committee’s more gloomy growth outlook.

He said: “It is clear from the MPC's latest analysis that overall the SA economy is still facing some important headwinds over the next few months.

”The fact that the MPC has reduced its growth forecast for 2018 from 1.7% to 1.2% is troubling and confirms similar recent downward revisions of growth expectations by several private sector economists. 

“Apart from anything else, weak economic growth now puts a strain on the original 2018 growth targets outlined in the February 2018 Budget Speech and on the fiscal commitments that have been made.”

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