The International Monetary Fund (IMF) has raised South Africa’s economic growth outlook slightly as the country gradually implements its structural reforms as part of the Covid-19 recovery.
In its July World Economic Outlook, the IMF said South Africa’s gross domestic product (GDP) would grow by 0.4 percent, from the previous forecast of 1.9 percent to 2.3 percent this year.
However, the IMF said South Africa’s growth outlook for 2023 remained unchanged at 1.4 percent.
This economic growth outlook is in line with the South African Reserve Bank (SARB) forecast as it expects the economy to grow from a previous forecast of 1.7 percent to 2 percent in 2022, and 1.3 percent in 2023.
Last week, the SARB said economic growth remained above a low rate of potential with supportive household spending in spite of disruption caused by flooding in KwaZulu-Natal and more extensive load shedding in the second quarter.
The IMF’s outlook for countries in sub-Saharan Africa remained on average unchanged or positive, reflecting the effects of elevated fossil fuel and metal prices for some commodity-exporting countries.
However, the IMF slashed the global growth outlook due to a slowdown in the world’s three largest economies and also flagged inflation as a major concern due to the Russian/Ukraine war.
The IMF’s baseline forecast is for growth to slow from 6.1 percent last year to 3.2 percent in 2022, 0.4 percentage point lower than in the April forecast.
“This reflects stalling growth in the world’s three largest economies — the US, China and the euro area — with important consequences for the global outlook,” said the IMF director for research, Pierre-Olivier Gourinchas.
“China’s slowdown has been worse than anticipated amid Covid-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine.”
Despite slowing activity, global inflation has been revised up, in part due to rising food and energy prices.
The IMF said inflation this year was anticipated to reach 6.6 percent in advanced economies, and 9.5 percent in emerging markets and developing economies.
This is an upward revision of 0.9 and 0.8 percentage points respectively, and is projected to remain elevated longer.
Inflation has also broadened in many economies, reflecting the impact of cost pressures from disrupted supply chains and historically tight labour markets.
Gourinchas said financial conditions were tightening, especially for their emerging-market counterparts as advanced economies raised interest rates to fight inflation.
“Countries must appropriately use macroprudential tools to safeguard financial stability,” he said.
“Where flexible exchange rates are insufficient to absorb external shocks, policymakers will need to be ready to implement foreign exchange interventions or capital flow management measures in a crisis scenario.”
BUSINESS REPORT