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The economic outlook for South Africa got bleaker this week as the International Monetary Fund (IMF) slashed its forecasts for local growth both for this year and next year.
On a more worrying note, the IMF cut its forecast for next year by 0.6% to 1.2%. In the February budget, National Treasury forecast 1.7% for next year’s growth.
The IMF cut its economic forecast for this year by 0.1% to 0.6% due to lower commodity export prices, elevated policy uncertainty, and tighter monetary and fiscal policy, the multilateral organisation said in its latest World Economic Outlook report.
On the other hand, the World Bank this week kept its forecast for local growth this year at 0.8%, according to Africa Pulse, the World Bank’s latest analysis of economic trends in Africa.
“China’s investment slowdown has had a significant impact on demand for and prices of those commodities closely related to investment activities – indeed, metal prices have fallen steadily since early 2011 [by almost 60% on average],” the IMF said.
The IMF’s local growth forecast for this year is on the weak side of the forecast range, with the SA Reserve Bank and National Treasury both projecting South Africa to grow by 0.9%, but Nedbank economists are pessimistic, projecting growth at just 0.2%.
South Africa’s forecast growth rate this year is the slowest projected growth among the world’s major economies other than Russia and Brazil, which are experiencing a contraction.
This year, the Russian economy is forecast to contract by 1.8% and Brazil is projected to see its growth recede by 3.8%.
On a positive note, World Bank senior economist Marek Hanusch said at an event in Pretoria that the South African government was doing a good job in a number of areas, which would see the economy picking up despite the possibility of a credit rating downgrade.
While the rand depreciated by 20% between December and January, it has since regained strength and is up 6% to the dollar, which Hanusch said would have a positive effect on poor households as the previous depreciation of the rand was one of the main reasons for the increase in food prices, which were hitting the poor the hardest.
“The drought is a story about inflation and poverty. Drought has affected gross domestic product by about 0.2% off growth because it was such a huge contraction of about 8% in agriculture in 2015, and we expect a 5% contraction in agriculture this year,” Hanusch said.
The government was doing a good job to stave off a further decline in the economy, the World Bank said.
“On the debt side, the government is making a huge effort to control and keep the adjustment path. On the growth side, if growth doesn’t return at some point, it will have an impact on national solvency and that will depend on how the credit ratings agencies see growth,” said Hanusch.
The manner in which South Africa had dealt with the electricity crisis was also a good enabler for economic growth, the World Bank said.
South Africa would do well to improve its cities’ infrastructure as investments would grow.
“We’ve seen improvements in the electricity situation and other areas of the investment climate and business confidence, so we see growth coming back, and this will bode well for national solvency,” said Hanusch.
The bank said South Africa’s growth would come from three sectors – in information and communications technology, transport and financial services.
“These services hold a huge potential in South Africa and they are also labour intensive, so they have a huge potential to reduce the high unemployment rate, and that will mean households will be better off, which would lead to consumption impetus,” said Hanusch.
