IMF cuts SA’s growth rate for next two years
Following suit with the World Bank, the IMF has slashed SA’s economic growth forecasts for the next two years to below 1%.
SA is still expected to record subdued growth in 2018, according to the IMF’s latest World Economic Outlook, but increased political uncertainty is expected to weigh on confidence and investment.
Economic growth for 2018 and 2019 was expected to remain below 1% at 0.9% for both years. This was a marked drop from the 1.1% previously expected for 2018 and the 1.6% expected for 2019.
The IMF’s outlook was probably done way before SA’s latest attempts to bring political certainty. It was unlikely to have taken the most recent political developments into account.
The election of Cyril Ramaphosa ANC president, together with his drastic moves at the weekend to bring stability at power utility Eskom, could have been steps in the right direction and could have improved market confidence, said Investec chief economist Annabel Bishop.
But despite the recent developments, Dave Mohr, chief investment strategist at Old Mutual Multi-Managers, warned that political uncertainty remained. "There are still two centres of power running the country — one in the Union Buildings and one at the ANC’s headquarters at Luthuli House, limiting the scope for reform."
Ramaphosa, who is heading SA’s delegation to the World Economic Forum in Davos, Switzerland has made all the right noises in terms of focusing on growth, investor confidence, combating corruption and fixing state-owned enterprises. While the political outlook is uncertain, it is much less so than a few months ago, which should lift business and consumer confidence, Mohr said.
The IMF said sub-Saharan Africa had been weighed down by the weakness of its larger economies, particularly SA.
The growth pick-up in sub-Saharan Africa was projected from 2.7% in 2017 to 3.3% in 2018 and 3.5% in 2019.
A report from the World Bank two weeks ago indicated that SA’s growth was lagging behind other emerging economies, also citing policy and political uncertainty.
While the World Bank expected SA’s growth to rise to 1.1% in 2018 from 0.8% in 2017, emerging markets were expected to average 4.5% growth in 2018. SA had also fallen below the global average of 3.1%.
Last week, the Reserve Bank raised its forecasts slightly. Growth for 2017 was revised up to 0.9% from 0.7%, while SA is expected to achieve growth of 1.4% rather than 1.2% in 2018.
Reserve Bank governor Lesetja Kganyago said that if the recent political developments led to a sustained boost in business and consumer confidence, the outlook for 2018 was expected to be stronger.