Brexit Could Hurt South Africa’s GDP Growth, Kganyago Says

  • Investors don’t see South Africa as a haven for assets
  • Reserve Bank looking beyond the U.K.’s effect on economy

The U.K.’s vote to leave the European Union will hurt South Africa’s economic growth, according to Reserve Bank Governor Lesetja Kganyago.

“We would not venture into a recession at this stage, but there is no doubt that it will slow the South African economy from the weak growth that we already have,” Kganyago said in an interview with Bloomberg TV at the European Central Bank Forum in Sintra, Portugal on Tuesday.

The U.K. is South Africa’s fifth-largest trading partner and a slowdown as a result of Brexit may hurt demand for the African nation’s exports. The economy shrunk by 1.2 percent in the first quarter, as mining and farming output slumped due to low mineral prices and a drought. Gross domestic product probably expand at the slowest pace since a 2009 recession this year, according to the central bank.

The rand dropped to a record against the yen and by the most since 2008 against the dollar after the U.K.’s vote sent investors scurrying for safe assets, before paring the decline. South Africa’s central bank will consider intervening in the foreign-exchange market if its orderly operation is threatened, Deputy Governor Daniel Mminele said on June 24.

“It has affected sentiment and investors were looking for safe assets,”  Kganyago said. “We are not seen as one of the safe assets.”

The Reserve Bank’s Monetary Policy Committee left the benchmark repurchase rate unchanged at 7 percent last month after raising it four times since July, and is due to announce its next interest-rate decision on July 21. While inflation slowed to 6.1 percent in May, it is still outside the MPC’s 3 percent to 6 percent target band. Brexit won’t make much change to the central bank’s interest-rate outlook, Kganyago said.

“There are so many moving parts at the moment,” he said. “In looking at the effect of the global economy on South Africa we look beyond the U.K.”

The rand strengthened 1.2 percent to 14.9962 per dollar as of 9:18 a.m. in Johannesburg on Wednesday. Yields on rand-denominated bonds due December 2026 fell 12 basis points to 8.77 percent.

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