* Economy growing much less than it should be
* Growth seen barely exceeding 1.5 percent by 2019
* Economy has just emerged from a recession
* Medium-term challenge is to anchor inflation (Adds governor’s comments in para 10-11)
By Mfuneko Toyana
PRETORIA, Oct 4 (Reuters) - South Africa’s economy is growing much less than it should be and is unlikely to reach 2-percent annual expansion in the short term because of political and policy uncertainty, the central bank said on Wednesday.
The Reserve Bank, which in June faced pressure to switch its focus to economic growth from targeting inflation and protecting the currency, said there was little that monetary or fiscal policy could do to arrest a slowdown.
In its semi-annual Monetary Policy Review (MPR), the bank warned that any economic recovery would be “feeble” and growth would barely exceed 1.5 percent by 2019, well short of the government’s long-term target of 5 percent.
The bank has previously stated that it sees growth this year at 0.6 percent compared with 0.3 percent in 2016.
The continent’s most industrialised economy contracted in the last quarter of 2016 and the first quarter of 2017 before recording marginal growth in the second quarter.
The bank’s forecast models in the MPR show that had investor confidence, along with commodity prices, maintained their long term averages, the economy would have grown by about 2 percent in 2016, rather than the actual growth of 0.3 percent.
“FAILURE TO ACT”
“Confidence indicators have been below longer-term averages since late-2015, when the serving finance minister was unexpectedly dismissed, and are currently about as low as they were during the global financial crisis,” the bank said.
President Jacob Zuma changed finance ministers three times in less than a week in 2015. In March this year, Zuma axed the respected Pravin Gordhan as finance minister after less than a year in the job, triggering credit downgrades by all three major agencies.
“The historical evidence is clear that investment in South Africa is highly responsive to uncertainty,” the bank said, noting that private sector investment continued to contract.
Governor Lesetja Kganyago told a news conference later that a lack of action against corruption was weighing on business confidence. “Our failure to act on corruption might be giving the wrong signal that we actually do not treat this thing seriously,” Kganyago said.
The bank said larger-than-anticipated shortfalls in government revenues raised the probability of deeper credit rating downgrades, and that the risk this posed to the currency and inflation had convinced it to keep lending rates unchanged at 6.75 percent in September following a 25 basis point cut in July.
Data released on Friday showed the Treasury recorded a 13 billion rand ($957 million) budget deficit in August following a 92 billion rand shortfall in July.
The bank expects annual consumer price-growth averaging 5.3 percent in 2017 and 5 percent in 2018, a touch below the upper end of its target range of 3-6 percent.
“The medium term challenge for monetary policy is to anchor inflation and inflation expectations more firmly within the inflation target,” the bank said. ($1 = 13.5850 rand) (Editing by James Macharia and Richard Balmforth)