gill marcus : lessons for south africa from germany in a challenging global environment address by ms gill marcus, governor of the south african reserve bank, at the southern african - german chamber of commerce and industry luncheon, johannesburg, 19 april 2013. * * * thank you for the invitation to speak to you today. we meet at a time when the imf spring meetings are taking place in washington. the mood in washington appears to be less sombre than was the case in the previous meetings, as the three big high - risk, high impact concerns of last year – a possible eurozone breakup, the us fiscal cliff and a possible hard landing in china – have been avoided or at least postponed for now. however the low growth environment looks set to persist, and the world economic outlook of the imf published earlier this week indicates that global growth is unlikely to be much better than was the case in 2012. recent political and banking sector developments in cyprus, portugal, spain and italy illustrate just how fragile the recovery remains. although in recent years there have been important shifts in south africa ’ s trade ties, diversifying away from our traditional partners, europe remains an important destination for our exports and an important source of both direct and portfolio investment. germany ranks second in terms of destination of south africa ’ s manufactured exports and the outlook for the south african economy therefore remains intricately tied to the fortunes of the region, and to germany in particular. in my remarks to you today i will outline how we see the outlook for the global economy. however, beyond our trade and investment relationships, there are a number of lessons that south africa can learn from germany ’ s experience with labour relations and skills training, which are important elements of the kind of structural shifts that are required if south africa is to compete effectively in the international trade arena, and to make appreciable inroads into the country ’ s unemployment problem. global developments are critical for the south african economy going forward, and we look forward to a revival in world trade to help drive the domestic recovery. the cautious optimism that was evident at the beginning of the year, what some refer to as the “ new year effect ”, has now given way to renewed concerns. the imf forecasts global growth this year to average 3, 3 percent, compared with 3, 2 per cent in 2012 but down on their previous estimates. the imf still sees the recovery as fragile, with downside risks remaining, particularly in advanced economies. the world trade

organisation last week downgraded its forecast for growth in world trade in 2013 from 4, 5 per cent to 3, 3 per cent ( well below the long run trade growth of 6 per cent ), mainly a result of renewed risks coming from the eurozone and the impact of rising protectionism. we are in effect seeing a continuation of the crisis which has mutated between a subprime crisis, a growth crisis, a fiscal crisis, a sovereign debt crisis, a systemic banking crisis and a political crisis. all of these aspects are of course interrelated, and very often the resolution of one creates problems in another sphere. nowhere is it more evident than in europe where weak politics and weak economic outcomes and outlooks feed off each other. the banking crisis in cyprus illustrates clearly how even very small countries can be potentially systemically important. while it appears that the tail risks related to the eurozone have receded somewhat, these risks have not disappeared. recent interventions by governments and the ecb, in particular the omt, have shown a credible commitment to maintaining the integrity of the region, but important structural changes will need to be made in the medium to long term. in the short term, europe is experiencing a recession and rising unemployment, due in part to fiscal bis central bankers ’ speeches austerity and banking sector deleveraging. the economic downturn in the periphery has been worse than official projections, and this could reinforce the adverse government debt dynamics and raise anew the questions of the sustainability of the regional arrangements, and the political acceptability of fiscal austerity. at the same time, progress seems to have stalled on banking reforms in the region, and the initial indecision regarding the bail - out of the cyprus banking system has probably undermined progress on these reforms, as well as raising new concerns about safety of deposits. the other major lagging economy is japan, and the outlook is perhaps a bit more difficult to assess following the announcement of significant monetary and fiscal stimulus packages. it is not clear to what extent the massive liquidity injection us $ 1, 4 trillion over the next two years announced by the bank of japan will result in higher domestic expenditure. what is more certain is that the monetary stimulus is likely to lead to renewed capital flows to emerging market economies, with their attendant challenges. we have already seen the short term impact of this policy announcement, with the recent recovery of the rand to levels below r9, 00 against the us dollar. the outlook for