Citibank economist Jean Francois Mercier gives his take on the woeful condition of the economy.

Bruce Whitfield:
Jean Francois Mercier is the Citigroup economist in South Africa and it is quite interesting Jean because on the one hand we have got the finance Minister reassuring us on growth, on the other hand the Reserve Bank Governor Tito Mboweni warning us earlier today that we must be preparing for a slowdown.

Jean Francois Mercier:
Well, I would believe more the Reserve Bank governor on that count actually, because obviously, when the economy goes through a bit of a slowdown it is in part the job of the finance ministry to prop up the morale and stimulate activity so of course, finance ministries are never going to say that we are in bad situation and of course we should keep all things relative, this is not a major downturn, it is not going to be a recession but I doubt that we will have growth of much more than three percent this year.

Bruce Whitfield:
And also, Tito Mboweni talking today like a guy who is planning to raise interest rates next month. That was my interpretation of what he was saying, what was yours?

Jean Francois Mercier:
I do think the likelihood of an interest rate hike, the last one hopefully in the cycle, has risen and actually, I was not expecting that hike up to very recently but all the events happening with the sharp weakening of the rand, the continued rise in commodity prices, all that is going to raise the profile for inflation, to raise inflation expectations most probably when the survey of the BR is released together with the MPC statement. So I think it would be very difficult for the Reserve Bank to tell us in the statement that the inflation projection has to be revised substantially up that inflation expectations are up and still the Reserve Bank does nothing about it then they would run the risk of having a negative market reaction which might force them to do even more later and that would obviously not to be a good outcome for the economy.

Bruce Whitfield:
And currency stress is so interesting as well, we have seen the rand lose probably on average, more than 20 percent against our major trading partners over the past couple of months, that has got to have a massive impact on our import inflation and so much of that import inflation is energy inflation and in terms of food prices set globally and also oil, of course.

Jean Francois Mercier:
Yes, absolutely, oil we know is an automatic formula, food prices in South Africa are increasingly a price taker because of the liberalisation of agricultural exchanges around the world, basically, local prices are increasingly determined by external prices plus the exchange rate so you have a bit of a double whammy there. Food prices have generally been strong on US futures markets and on top of that you have got the depreciation of the rand plus all the other goods that, of course, are imported. In the longer term, that said, the depreciating exchange rate should discourage people from buying the expensive foreign items and should hopefully help the export sector a little bit.

Bruce Whitfield:
We did see the trade deficit shrink a little bit in the last quarter of last year but it is not very much and it is, I suppose, quite volatile as well.

Jean Francois Mercier:
It is volatile and the worrying thing in the current account figures that we have today was that even though we had a fairly significant improvement in the trade deficit and net exports of goods and services did well, the deficit on investment income that is the dividends and the coupons that South Africa has got to pay to the rest of the world because of the past current account deficit that had to be financed with capital inflows that is growing so you need really a big improvement in the trade deficit to get even a moderate improvement in the current account balance.

Bruce Whitfield:
Jean Francois Mercier from OR Tambo International airport, he is the group economist at Citibank in South Africa and his views this evening on the economic scenario that we find ourselves in.