An economic recovery can be expected by the end of the year, deputy governor of the SA Reserve Bank (SARB) Daniel Mminele said in Istanbul on Sunday.

He told the Citigroup Global Issues Seminar that although South Africa's growth continued to contract in the second quarter of this year, the pace of contraction had slowed from -6,4 percent in the first quarter to -3,1 percent in the second quarter.

Mminele added that the manufacturing sector appeared to be turning the corner as the Purchasing Manager's Index seemed to be steadily climbing back towards the 50 threshold.

He said that businesses and consumers were also more optimistic as reflected by the confidence indices.

"The composite leading indicator of the SARB has been increasing during the last three, indicating that a recovery can be expected by the end of the year," Mminele noted.

Describing recent economic developments in SA, Mminele said the domestic economic activity had began to slow on account of tighter monetary policy applied between 2006 and 2008, resulting in slowing domestic demand.

"However, the real impact of the decline in global growth started to be felt in the fourth quarter of 2008, when for the first time in a decade, the domestic economy contracted," he said.

In the first quarter of 2009, the domestic economy officially entered into a recession and a third consecutive quarter of negative growth was recorded in the second quarter of this year, he added, noting that SA was somewhat lagging the rest of the world.

Mminele said initially the declines in economic activity were concentrated in the manufacturing sector, but as international conditions deteriorated, the slowdown had filtered through to other sectors as well.

However, he noted that there were encouraging signs that the global slowdown may have reached its lower turning point and that the SA economy was very much influenced by global economic developments.

"While we lagged on the way down, it is likely that we will lag on the way up," he added.

Taking cognisance of the global financial and economic environment, and domestic developments with regard to growth, Mminele said that SA's monetary policy would remain primarily focused on inflation management.

As a member of the G20 and in support of the commitments made to address the impact of the financial crisis, he noted that SA's fiscal and monetary authorities had, like in many other countries, implemented counter-cyclical policies.

"The prudent management of the public finances during periods of robust growth has created the necessary space for fiscal policy to be expansionary during periods of slower growth," he added.

Mminele said the country's expansionary fiscal policy, combined with monetary policy easing, should play a strong role in supporting both short and long-term economic growth and employment creation.

Sapa

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