EDITORIAL: Tricky times for the world, hard times for SA

Briefing journalists on the IMF’s latest World Economic Outlook, the director of the fund’s research department, Pierre-Olivier Gourinchas, talked about a “tricky time” in the world.

The IMF now expects global economic growth to bottom out at 2.8% in 2023, rising modestly to 3% next year. The risk, however, is that it could turn out a lot worse. “Fragile” and “vulnerabilities” are words that often come up in the Outlook. The fund’s economists warn that inflation remains stickier than expected and central banks may have to do more tightening; they warn too that the consequences of the rapid interest rate hikes of the past year are now being felt, for example in the recent bank failures in the US and Europe and the financial instability that followed.

The financial system might be tested again, they warn — and it could be very bad for emerging markets if it causes another “risk-off” shock. That would mean capital outflows from these markets, driving their currencies down and their debt costs up.

All of that could mean that worse global per capita growth may even go negative. The probability is low, but it’s there. Even worse is that the IMF sees a long stretch of slower global growth, reflecting “ominous” forces. Those include the scarring effect of the pandemic but also slower structural reforms and, disturbingly, the rising threat of economic fragmentation between global blocs that could lead to more trade tensions and less direct foreign investment.

For SA, the fund’s take on global prospects could hardly be more disturbing. As it is, SA has the dubious distinction of having had the biggest downgrade to its growth forecast of all the large markets the fund monitors.

After the IMF’s economists completed their annual Article IV visit to SA  in March, they cut their growth forecast for this year to 0.1% , from the 1.2% pencilled in in January. They cited intensified load-shedding, as well as SA’s transport and logistics constraints and its slow pace of economic reform. At 0.1% they are among the more pessimistic of the forecasters but this week’s reversion to Stage 6 load-shedding strengthens their case.

We tend to be rather parochial about SA’s many self-inflicted economic woes. But we should be even more concerned if we put them in the context of the global risks the fund has outlined. Slower global growth over the next five years or more will make it more challenging for SA to bump up exports and foreign direct investment to the levels that it needs to give impetus to growth.

Add to that the IMF’s warning that in a world at risk of financial instability, nervous investors will be targeting the weakest links, whether companies or countries. In this environment, SA had better make dead sure it manages its public finances with the kind of prudence that will not make investors nervous; its monetary policy too. Better still, it could put itself on the stronger link list if it actually delivered on its reform promises and opened up the economy for growth.