South Africa’s Macroeconomic Performance Before, During And After The Global Financial Crisis Of 2007 2008

1045 words - 5 pages

The global financial crisis of 2007 – 2008 impacted every nation in the world, but the timing
and severity of the impact varied greatly depending on various factors such as the sovereign
debt as a percentage of Gross Domestic Product (GDP) prior to the financial crisis, as well as
the level of exposure to the Collateralized Debt Obligation (CDO) sub-prime mortgagebacked
securities of the different countries.

Where governments and banks had significant exposure to CDOs, which became known as
toxic debt instruments in the wake of the financial crisis, the impact was experienced more
speedily and more severely. South Africa had very limited exposure to these debt
instruments, so the ...view middle of the document...

2008 saw a 34.5% reduction in economic growth from 2007 and in 2009 the South African
economy experienced a further decline of 141.7% based on the previous year’s figure.

Table 2: South Africa’s economic growth from 2004 to 2012
2004 2005 2006 2007 2008 2009 2010 2011 2012
GDP 4.6% 5.3% 5.6% 5.5% 3.6% -1.5% 3.1% 3.6% 2.5%

Source: Statistics South Africa – Gross Domestic Product (2013)
The South African economy has recovered from the worst case scenario of 2009, but not yet
to the economic growths levels achieved before the financial crisis. The government are still
implementing measures to bolster the economy.
b) South Africa’s macroeconomic policy response to the financial crisis
South Africa’s monetary policy is an inflation targeting policy where the inflation target is a
range target of between three and six per cent.
South Africa historically measured inflation using the Consumer Price Index excluding
interest rates on mortgage bonds (CPIX), but in January 2009 moved over to using the
Consumer Price Index (CPI).
Table 3 below indicates South Africa’s inflation as measured by the percentage change in
CPI from 2004 to 2012 as well CPIX data from 2004 to 2008.
Table 3: South Africa’s inflation between 2004 and 2012
2004 2005 2006 2007 2008 2009 2010 2011 2012
CPIX 4.3% 3.9% 4.6% 6.5% 11.3%
CPI 7.1% 4.3% 5.0% 5.6%
Source: Statistics South Africa – Consumer Price Index (2013)

Due to the inflation levels between 2007 and 2009 exceeding the inflation target range of
between three and six per cent, the South African government opted to apply countercyclical
fiscal policy in the form of increased government expenditure and borrowing. An additional
motivation for this choice was that in 2004 South Africa was awarded the privilege of hosting
the 2010 FIFA Soccer World Cup, so there was already a need for infrastructural expenditure
in the country, some of which had already begun to take place.

Figure 1 below depicts the reduction in South Africa’s...

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