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The previous Monetary Policy Review (MPR) was published in May 2012 at a time of heightened uncertainty and deep concern about the risks posed to the global and domestic economy from developments unfolding in Europe and elsewhere. The global economic crisis has not eased appreciably since then and global economic growth momentum has moderated. A slowdown in major emerging-market economies (EMEs), in particular China and Brazil, has been prolonged by weaker-than expected growth in the United States (US) and sustained recession in many euro area countries and the United Kingdom (UK). 

This MPR marks a point where renewed efforts are being made by central banks in the US, the euro area and Japan to moderate or reverse the deterioration in global economic conditions and intensification of financial market tensions. These efforts are important steps forward, but as ongoing turmoil suggests, are merely part of a long series of ameliorative steps that still need to be taken.

Improvements can be discerned in some key markets, such as in US housing, but these instances of positive outcomes remain overshadowed by a range of policy and coordination risks. As a result, market volatility remains high and negative spillovers to real economic activity and confidence are likely to continue in coming months. 

While emerging markets continue to provide upward impetus to global growth rates, prospects have deteriorated in the face of weakening external demand. Global gross domestic product (GDP) growth estimates have been revised downwards. 

Subdued economic growth, weak demand and lower commodity prices have softened inflationary pressures in many countries. The already relatively benign global inflation outlook is expected to moderate further in 2013. However, supply-side shocks from higher food prices and volatile international oil prices continue to pose a serious risk to the inflation outlook. A few countries have cited concerns about near-term inflationary pressures.

Many central banks have kept policy rates unchanged at low levels. A significant number of advanced and emerging economies have eased policy as growth fell off or implemented additional unconventional measures, while only a few have tightened policy.

Both global and domestic factors have shaped the outlook for the South African economy. Output in the primary sector in the first half of 2012 was volatile and growth in the secondary sector weakened. Household consumption has moderated.

Gross fixed capital formation grew at a reasonable pace of 6,1 per cent, with greater impetus provided by government. Subdued credit extension picked up speed in September. Employment levels increased up to the middle of 2012, but industrial unrest in the mining sector suggests a worsening of prospects for the third and fourth quarters of this year. The impact will be exacerbated if confidence weakens significantly in other sectors of the economy.