Policy makers must take note of South Africa's economic slowdown, SA Reserve Bank governor Tito Mboweni said on Thursday evening.

He was speaking in Pretoria at the bank's ninth annual dinner in honour of heads of foreign missions.

Mboweni said third quarter GDP growth at 0.2 percent reflected significant contractions in mining, manufacturing and wholesale and retail trade.

Not favourable

He said the outlook "is not viewed as being particularly favourable".

He added, however, that "despite an inevitable slowdown in GDP growth, we do not expect a recession at this stage".

Turning to October's consumer inflation data that came in at 12.4 percent year-on-year from a peak of 13,6 percent in August, Mboweni said that this was hopefully the start of a consistent downward trend and that policy makers should take this into consideration.

The Reserve Bank's forecasts indicated that inflation should be back in the three to six percent target range by the second quarter of 2010.

Mboweni said that the inflation outlook had been improved to some extent by a number of variables that previously were seen as upside risk factors.

Oil decline

"The international oil price has declined significantly and global food price inflation appears to be moderating."

There were, however, upside risk factors to the inflation outlook, Mboweni said.

"Inflation expectations are an important driver of inflation and we have seen a successive deterioration of these over the past year in particular."

These expectations might feed through to further inflationary pressures, Mboweni said.

"Our hope is that inflation expectations will respond quickly to the expected reversal in the inflation trend."

Major risks

Mboweni said that major risks could be found in the exchange rate market.

He noted that the rand's depreciation of 31 percent against the dollar did not reflect the underlying fundamentals of the economy.

He added that part of the reason for the poor performance of the rand was related to the decline in commodity prices.

In reference to the current global economic woes, Mboweni said: "We are living through the most severe economic crisis in living memory."

Sapa

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