s crisis of confidence at the present juncture, our fundamental problem is confidence. in economic discussions, ‘ confidence ’ is sometimes an opaque and disreputable concept. paul krugman in 2010 coined the term ‘ confidence fairy ’ for when pundits rely on magical thinking to explain how their favourite policies can have only good effects. 8 but i ’ m afraid that, in south africa at the moment, we can ’ t comfort ourselves that confidence is a mythical creature. it would be more accurate to say that it is very real – but badly endangered. we have reliable measures of business and consumer confidence. the ber ’ s9 surveys show that the confidence levels of both these sectors are at their lowest since 8 see the article by paul krugman, ‘ myths of austerity, published on 1 july 2010, available at http : / / www. nytimes. com / 2010 / 07 / 02 / opinion / 02krugman. html. 9 bureau for economic research ( stellenbosch university ) page 5 of 10 the global financial crisis. these two indicators slipped below their long - term averages in late 2015 and have stayed there ever since. just last week, for example, new data for business confidence in the second quarter came out at a fresh post - crisis low, with 70 % of the respondents pessimistic about local business conditions. weak confidence has profound economic consequences. when people are this worried about the economy, theory tells us, they don ’ t make large purchases. businesses defer investments. all of this weakens economic growth. these theoretical predictions are completely consistent with what we see in the data. why is confidence so subdued? the answer is simple. everyone in south africa is worried about their country. twice a year, south african reserve bank ( sarb ) hosts monetary policy forums in 10 major and secondary cities. during these forums we find that people want to talk about governance, about the exchange rate, about credit rating downgrades. they ’ re worried about policy ; they ’ re worried about living in a junk status country. it is a depressing discussion, but in a way it is impressive : economic issues often seem obscure, yet people quickly become informed and passionate when the situation is serious. the message we get from regular south african citizens is fundamentally very similar to the one we hear from the ratings agencies. we have deep - rooted problems of unemployment, poverty and inequality. our economy is not growing as fast as it

an address by lesetja kganyago, governor of the south african reserve bank, at the ceef africa annual banquet in celebration of 21 years of leadership investment johannesburg, 19 june 2017 south africa ’ s crisis of confidence and the policy response good evening, ladies and gentlemen. thank you for inviting me to address you today. the global economy has been as favourable recently as it has been for some time. we are experiencing a synchronised cyclical upturn across major economies. south africa ’ s terms of trade are near all - time highs. meanwhile, global financial markets have resumed a search for yield, causing stronger capital inflows to emerging markets, including south africa. by contrast, the domestic economy has fallen into recession, with output contracting in both the last quarter of 2016 and the first quarter of 2017. although this is the first technical recession since 2009, it continues a trend of exceptionally poor economic performance. we have warned about poor economic performance for several years, and although we did not expect the first - quarter gdp1 figure to be quite so weak in quarter - on - quarter terms, our assessment in the may mpc2 meeting was that the risks to the growth forecast were on the downside. 1 gross domestic product 2 monetary policy committee page 1 of 10 meanwhile, inflation has returned to within the target range, as expected. some recent numbers have come in a bit lower than anticipated, but our forecast still indicates inflation in the upper half of the target range across the forecast horizon, which stretches to the end of 2019. the combination of lower inflation and lower growth suggests, at least to some, that the time has come for rate cuts. the mpc will meet in late july to consider how the outlook has changed, and we will make the appropriate decision at that time. we are not here for me to give interesting hints about the next repo rate decision. the best source on mpc decisions is the mpc statement, not speeches a month prior. instead, this speech is about our broader policy constraints and the medium - term outlook for the south african economy. we confront major challenges – challenges which cannot be resolved in any meaningful sense by fine - tuning the repo rate – and we need to grapple with those problems. monetary policy does have a role to play, but it is crucial to acknowledge the limits to monetary policy and to focus on its optimal contribution over a medium - term horizon. today, i will start by discussing south africa ’ s macro