The weak growth performance entails further risks in a world where globalisation is retreating, with real yields propped up by high borrowing demands and insufficient efforts to get growth moving. South Africa and other emerging economies need to work harder to attract capital.
This is even more true in a world in which neutral real rates in advanced economies shift higher, a prospect that looks increasingly likely. In such conditions, emerging economies run a serious risk of becoming permanently more prone to currency depreciation and higher inflation. On its own, this prospect pulls up our neutral rates, and can only be combatted with more orthodox policy measures.