IMF slashes SA’s GDP growth forecasts, spelling trouble for Ramaphosa
The fund highlighted strikes, energy supply issues and weak agricultural production, as reasons for cut
The International Monetary Fund (IMF) has slashed its growth forecast for SA for 2019 and 2020 spelling trouble for President Cyril Ramaphosa, who came to power on a ticket of reform and economic growth.
The fund cut its GDP growth forecasts to 0.7% for 2019 from 1.2% previously, and 1.1% for 2020 from 1.5%. This followed significant revisions in April brought about by policy and political uncertainty ahead of the elections.
The economy has not grown by more than 2% annually since 2013 and is struggling to gain momentum, despite political changes and Ramaphosa’s efforts to implement policy reforms to boost growth and lure investment into the country.
Lower growth forecasts, further bailouts for state-owned enterprises will weigh on the fiscus, increasing the risk that the SA will lose its remaining investment-grade rating from Moody’s Investors Service.
The IMF’s projections are well below the Treasury’s forecast of 1.5% growth for 2019 and slightly above the Reserve Bank’s projection of 0.6%.
“Growth in SA is expected at a more subdued pace in 2019 than projected in April following a very weak first quarter, reflecting a larger-than-anticipated impact of strike activity, energy supply issues in mining and weak agricultural production,” the IMF said in its World Economic Outlook, released on Tuesday.
This comes as finance minister Tito Mboweni said government may have to increase borrowing for Eskom in 2019.
Earlier in July, Mboweni said the government’s 2023-2024 forecast of a debt-to-GDP ratio of just more than 60% would probably prove optimistic as it was based on growth rates that were unlikely to be achieved.
Moody’s is already projecting that the ratio could be 65%, with a risk of breaching the 70% mark depending on the level of support needed by SOEs.
“Years of poor management and state capture, aggravated by weak economic growth, are haunting the economy and will most definitely culminate in further fiscal slippage in the current fiscal year and beyond,” NKC economist Elize Kruger said.
The economy contracted 3.2% in the first quarter of 2019, after the country experienced a severe bout of power cuts. Data in the past few weeks show the economy rebounded in the second quarter but growth still remains weak.
In contrast, growth in sub-Saharan Africa will far outstrip that of SA, with the IMF predicting a 3.4% expansion for the region in 2019, from a previous estimate of 3.5%, and 3.6% in 2020 from 3.7%.
The IMF also cut its growth forecasts for the global economy for 2019 and 2020. It projects growth of 3.2% in 2019, down from its April forecast of 3.3%, while the forecast for 2020 will pick up to 3.5%, although that is below its earlier forecast of 3.6%.
“GDP releases so far this year, together with generally softening inflation, point to weaker-than anticipated global activity,” the IMF said, citing global trade tension and Brexit-related uncertainty as factors.