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Political Developments
As the situation in Zimbabwe continued to deteriorate, the South African Government came under increasing pressure, both at home and internationally, to take a harder stance against the Mugabe regime. As other members of the African Union, the UN Security Council and international human rights groups issued statements highly critical of the Mugabe government, South Africa's insistence on low key diplomacy left it increasingly isolated. At a meeting of the Southern Africa Development Community in late March, South African President Thabo Mbeki was charged with negotiating a peaceful settlement to the long standing political unrest in Zimbabwe.
South Africa currently chairs the UN Security Council. In that spotlight, South Africa has three times opposed overwhelming majority votes on key international issues. It voted against censuring the Myanmar and Zimbabwe governments on human rights abuses and demurred on the resolution to impose sanctions on Iran. Each brought almost universal criticism in the South African and international press.
Domestically, crime continued to grab the headlines. The murder of and violent attacks against high profile victims, black and white, were subjects of lead articles, editorials and electronic media reports. Government came under criticism both for not doing enough to fight crime and for its defensive reaction to such criticism.
Economic Developments
Like the rest of the stock markets around the world, the Johannesburg JSE suffered a jolt in March, but it bounced back to record highs in the all-share index (over 27,000) and achieved overall growth of over 8% for the first two months of the year.
The current account deficit, which reached 6% in 2006, is giving economists pause. The deficit reached 7% in the fourth quarter, the highest in years. While it is of some concern and will certainly be a consideration when the Reserve Bank next meets on interest rates, most analysts are not panicking. South African stocks are still attracting high levels of foreign investment and forex reserves are at an all-time high.
From all indications, consumer spending is still strong despite the interest rate hikes of last year and the trade account will continue to be in deficit as infrastructure spending intensifies. Inflationary pressures are compounded by food prices that rose 8% last year and are projected to rise at a much higher rate this year. And everyone is wringing their hands over the lack of rainfall and a lower than expected maize crop, the mainstay of South Africa's agriculture.
Vital Statistics
Both inflation and the trade deficit surprised analysts by declining in February. Headline inflation slowed to 5.7%, year-on-year, and CPIX fell back to 4.9% year-on-year. The trade deficit narrowed to R2.7 billion from R8.9 billion in January. Both inflation and the trade deficit are expected to move upward as the effect of accelerated infrastructure spending and rising oil prices is felt. The Reserve Bank's Monetary Policy Committee meets in mid-April to determine whether interest rates should remain at current levels.
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