the weaker euro and lower oil prices. the partial reversal of the oil price suggests that this impulse may be waning. it does however appear that the quantitative easing by the ecb is bearing fruit, but the question remains as to whether the region can sustain the recovery without this support. a question mark also remains regarding the possible contagion effect from the greek debt crisis. the market reaction to date suggests that this is more contained, unlike the more generalised crisis in 2011 when risk premia on all peripheral eurozone bonds widened significantly. the chinese economy continues to focus on rebalancing away from investment to domestic consumption. this has resulted in a downward revision of growth targets, but has also meant that demand for commodities is not as strong as it was previously. while a growth rate of 7 per cent would seem unattainable for south africa, it is relatively low by recent historical standards for china. bis central bankers ’ speeches domestic outlook the spill overs on to south africa from these developments are significant. the us impact is through the exchange rate and long term bond yields, which are highly correlated with those in the uk. the eurozone is an important destination for south africa ’ s manufactured exports, so a slow recovery is bad for the manufacturing sector, while the ( until recently ) weaker euro means that the competitive advantage from a weaker rand is undermined. although the african continent, which has been growing quite robustly, has emerged as one of the main destinations of south africa ’ s manufactured exports, there are downside risks to the continent ’ s growth prospects given the decline in oil and other commodity prices. the slowdown in china has had a marked impact on global commodity prices, resulting in a deterioration of south africa ’ s terms of trade, which was only reversed to some extent with the collapse of international oil prices since late last year, but even this windfall has reversed somewhat. so all in all we are indeed facing a challenging international environment. however, it would be wrong to suggest that the subdued outlook for the domestic economy is purely a function of global developments. domestic factors are also important, and some of them are of our own making. real gdp for the first quarter of this year slowed down to 1. 3 per cent compared to the 4. 1 per cent ( qqsa ) recorded for the final quarter of 2014. this is against the backdrop of the sluggish growth rate of 1, 5 per cent for 2014 and which is well below the bank ’

francois groepe : recent international and domestic economic developments and changes to the financial regulatory architecture address by mr francois groepe, deputy governor of the south african reserve bank, at the actuarial society of south africa ( assa ) 2015 investment seminar, cape town, 27 may 2015. * * * introduction good day ladies and gentlemen. thank you for inviting me to this seminar and i look forward to sharing my views on the recent international and domestic economic developments, as well as changes to the financial regulatory architecture. global outlook the global environment facing south africa remains challenging and fraught with a high degree of uncertainty. developments in the us, in particular, continue to have spill - over effects on emerging markets in general and south africa in particular. while it is clear that monetary policy normalisation will ( and should ) take place, the timing of the initial “ lift off ” is still uncertain, and dependent on domestic developments in the us, not least in the labour market. this makes each data release a source of volatility, with good news in the payrolls data generally being interpreted that it will bring forward the expected commencement date of the normalisation process. perhaps of greater importance than the “ lift off ” itself is the question of the future path of interest rates. the us fed has gone to great pains to communicate a gradual path, but the “ dots ” ( the interest rate forecasts of the individual members ) that illustrate this are subject to a high degree of dispersion and change from meeting to meeting. this reflects the high degree of uncertainty. however, uncertainties in the us economy abound. the economy appeared to be well on the road to recovery in the second half of last year, but the first quarter data disappointed, following an advanced estimate growth rate of 0, 2 per cent. the general expectation is that this was due to temporary factors, but risks still remain that it could portend a more general extended slowdown. furthermore, there is still uncertainty regarding the improvement in the labour market : in particular, whether the improvement is a result of a decline in labour force participation rates, which could reverse should the improvement in the economy be sustained. finally, there is still a great deal of uncertainty about whether potential growth rates will return to pre - crisis levels or settle at a lower level, and this is likely to have implications for the longer term neutral rate of interest. the eurozone appears to be improving following a weak few quarters, with positive growth impulses from