State of the Economy: Intrinsic Merits of the Necessary Illusion
The Reserve Bank has recently warned against inviting a recession upon ourselves. The bank’s annual report for 2013/14 states that the economy grew by 1,9 per cent in 2013 and contracted by 0,6 per cent in the first quarter of 2014. South Africa’s economic landscape has been dominated by a fraught labour-relations environment that has seen a number of protracted and damaging strikes, mainly in the mining sector and the motor-vehicle subsectors. The bank also lowered its growth forecast for 2014 to 2,1 per cent, and reported that the level of unemployment is expected to persist.
The contraction of the economy in the first quarter is sending worrying signs of recession, however, the bank strongly advises against this speculation. It is within the bank’s mandate to consistently create confidence around our economy, but equally so, it must send the necessary signals and warnings in the case of slipping into a recession. The Governor of the bank was quoted saying “it behoves us all – government, business and labour – to rebuild the confidence and trust that is an imperative to change the negative trajectory that the economy is presently on”. Creating a necessary illusion about our macroeconomic state might be the correct strategy to boost confidence; however, this will be detrimental to identifying the necessary panacea to our economic ills.