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Euro Crisis Significant Risk for South Africa, Lagarde Says

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IMF Managing Director Christine Lagarde
Christine Lagarde, managing director of the International Monetary Fund. Photographer: Tomohiro Ohsumi/Bloomberg

Jan. 7 (Bloomberg) -- South Africa has become increasingly integrated into the global economy, leaving it exposed to “global business cycles,” International Monetary Fund Managing Director Christine Lagarde said.

“The ongoing difficulties in the euro area present significant downside risks to the economic outlook,” Lagarde said in an e-mailed statement today, the final day of a visit to meet with the leaders of Africa’s largest economy.

In October, South Africa’s National Treasury cut its forecast for economic growth this year to 3.4 percent from 4.1 percent in the February budget, saying the revised targets were contingent on an orderly resolution of Europe’s problems. Europe buys about a third of South Africa’s manufactured exports.

The challenge is to “ensure that monetary policy remains supportive and competitiveness improves,” Lagarde said. “At the same time, moderation in wage growth and enhanced competition would support the ongoing recovery and lay the foundation for higher growth in the medium term.”

The Reserve Bank kept its benchmark lending rate unchanged at a 30-year low of 5.5 percent last year to support growth as price pressures increased, causing inflation to breach its maximum 6 percent target.

“South Africa’s recent economic performance has been impressive,” Lagarde said. “Good macroeconomic policies which, together with a flexible exchange rate and sound financial sector, have mitigated the output drop during the global recession.”

Lagarde met with President Jacob Zuma, Finance Minister Pravin Gordhan, the head of the National Planning Commission Trevor Manuel and Central Bank Governor Gill Marcus during her visit.

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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