We are not immune to upheaval, says Manuel
October 12, 2008
South Africa's economy would not escape the "contagion" of the global financial crisis, finance minister Trevor Manuel said on Friday.
While local banks were "relatively well-insulated", a possible global recession would undermine commodity prices and South African economic growth, Manuel said in a telephone interview with 702 Talk Radio from Washington, where he was attending the annual meeting of the International Monetary Fund and World Bank this weekend.
The rand has plunged 21 percent against the dollar since September 1, while the benchmark all share index slumped 23 percent as investors fled riskier, emerging market assets on concern a global credit crisis would harm economic growth.
"We can't decouple ourselves," said Manuel. "There is clearly going to be contagion. We are integrated into the global economy."
Manuel will publish new growth forecasts in his mid-term budget review on October 21. In February, he forecast that the economy would expand 4 percent this year, down from 5.1 percent last year.
Unprecedented interest rate cuts and bank bailouts failed to quell panic in markets this week, putting the Group of Seven nations under pressure to pull even more policy levers.
South African banks were "well regulated and well capitalised" and had not participated in "exotic behaviour" that required some governments to bail out lenders, Manuel said.
The central bank's decision to raise interest rates six times since June last year was "well founded" as it helped to curb consumer spending, he said.
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