Brown Nielsen speaks to Lesetja Kganyago, governor of the South African Reserve Bank about the state of the countryโs economy. He says thatย despite its issues and historical vulnerability, it is quite resilient.
Lesetja Kganyago on his expectations at WEF
The South African economy has always had its own structural problems. COVID-19 just made the situation worse. However, we have recovered in terms of economic activity from COVID-19. The message we are carrying here in Davos is that the South African economy โ despite all of these shocks โ has demonstrated to be quite resilient. Team Treasury has done a very good job in arresting the trajectory and this becomes part of the resilience of the South African economy. Governments are facing a public increasingly intolerant of inflation. One of the sessions I will be attending has to do with the high cost of living. Many young people do not know what it is like to live with high inflation. And now that inflation has risen, central banks have got to act. What we are finding is that across countries, policymakers are facing a public that is increasingly intolerant of high inflation.
On balancing long-term and short-term risks
If you do not focus on the long-term risks, you run a serious policy conundrum. We have seen the effects of climate change in South Africa. We have seen how the floods have disrupted production, supply and logistics chains. These things are real and we have got to deal with them. When inflation reared its ugly head in 2021, my colleagues in the advanced economies were convincing themselves that it was temporary. Well, we have now realised inflation has become more persistent. What is complicating central bankers at the moment is that you have got this multiplicity of shocks, thus price setters have changed their behaviour. What we witnessed in South Africa this week was that inflation expectations have crept up. And when inflation expectations creep up, it is important the central bank comes in and nips that in the bud because you can no longer convince yourself this is just supply-side shocks. The real price formation process has changed and the central bank has got to live through its mandate.
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