francois groepe : the south african economy, policy mandates and international central bank cooperation address by mr francois groepe, deputy governor of the south african reserve bank, at the tenth annual international operational risk working group ( iorwg ) conference, cape town, 22 april 2015. * * * introduction good evening ladies and gentlemen. i wish to extend a warm and hearty african welcome to you and i hope that you will thoroughly enjoy tonight ’ s gala dinner. it is my privilege and honour to host this gala dinner on the occasion of the tenth annual international operational risk working group ( iorwg ) conference. i wish to personally thank the co - chairperson, ms donna brenner, for supporting the south african reserve bank ’ s ( sarb ) bid to host this important conference in this wonderful city. i, furthermore, wish to express my sincerest gratitude to all the delegates and their spouses, many who have travelled from abroad for gracing us with your presence and contributing to the debates and the discussions. the sarb has enjoyed a long and beneficial relationship with the iorwg and all its member central banks and it is my wish that this conference will further cement the strong and mutually beneficial bi - and multi - lateral relationships that have been built over many years. before we proceed with dinner, i would like to share with you some thoughts about the south african economy and our policy mandates and the importance of international cooperation among central banks. south africa and the global economy south africa is a small open economy with a population of 54 million and a gdp of some usd 350 billion. this equates to a gdp per capita of usd 5 900 and usd 12 100 on a purchasing power parity basis. the tertiary sector has expanded rapidly over the last decade or two and now accounts for nearly two thirds of the economy. one of the huge challenges the country faces is structural unemployment, which is around 24 per cent with youth unemployment as high as 50 per cent. in order for the country to keep unemployment levels stable, the economy needs to grow at approximately 3 per cent per annum. the country ’ s economic recovery after the global financial crisis was initially broadly in line with the global recovery with economic growth registering at 3, 0 per cent and 3, 2 per cent in 2010 and 2011, respectively. since 2011, the economic recovery has slowed with growth slowing to 2, 2 per cent and 1, 5 per cent in 2013 and 2014, respectively. growth for 2015 is projected at 2

i see little evidence of substantial structural change in recent years. rather than attributing the slow recovery to longer - term structural factors, i see growth being held back currently by a number of headwinds. first, although the housing sector has shown see bernanke ( 2012 ). see daly and others ( 2011 ) for an overview. bis central bankers ’ speeches signs of improvement, housing activity remains at low levels and is contributing much less to the recovery than would normally be expected at this stage of the cycle. second, fiscal policy, at both the federal and state and local levels, has become an important headwind for the pace of economic growth. notwithstanding some recent improvement in tax revenues, state and local governments still face tight budget situations and continue to cut real spending and employment. real purchases are also declining at the federal level. uncertainties about fiscal policy, notably about the resolution of the so - called fiscal cliff and the lifting of the debt ceiling, are probably also restraining activity, although the magnitudes of these effects are hard to judge. 30 it is critical that fiscal policymakers put in place a credible plan that sets the federal budget on a sustainable trajectory in the medium and longer runs. however, policymakers should take care to avoid a sharp near - term fiscal contraction that could endanger the recovery. third, stresses in credit and financial markets continue to restrain the economy. earlier in the recovery, limited credit availability was an important factor holding back growth, and tight borrowing conditions for some potential homebuyers and small businesses remain a problem today. more recently, however, a major source of financial strains has been uncertainty about developments in europe. these strains are most problematic for the europeans, of course, but through global trade and financial linkages, the effects of the european situation on the u. s. economy are significant as well. some recent policy proposals in europe have been quite constructive, in my view, and i urge our european colleagues to press ahead with policy initiatives to resolve the crisis. conclusion early in my tenure as a member of the board of governors, i gave a speech that considered options for monetary policy when the short - term policy interest rate is close to its effective lower bound. 31 i was reacting to common assertions at the time that monetary policymakers would be “ out of ammunition ” as the federal funds rate came closer to zero. i argued that, to the contrary, policy could still be effective near the lower bound. now, with several years of