IMF forecasts disappointing

International Monetary Fund (IMF) economists have published their forecasts for the world economy and their updated forecasts on SA are disappointing but probably dated. The IMF now sees SA’s economy growing at just 0.9% in 2018 and again in 2019, down from its October projections of 1.1% and 1.6%. It talks of “more subdued growth prospects in SA … as increased political uncertainty weighs on confidence and investment”. Chances are, though, that this reflects a pre-ANC conference perspective.

Other economists have been revising their forecasts upward in recent weeks, with the Reserve Bank last week lifting its projection for 2018 from 1.2% to 1.4% and for 2019 from 1.5% to 1.6%.

That’s still dismal in a country whose population is growing at about 1.7%, but it is starting to look better, at least in the short term. Crucially, if the new political leadership starts to make some of the hard decisions needed to reform the economy and boost its growth rate, medium to longer-term numbers could look better.

SA is not alone in this imperative. The IMF’s World Economic Outlook Update is upbeat in its assessment of the global economy. Global growth has been accelerating since mid-2016 and all signs point to a further strengthening in 2018 and 2019, IMF MD Christine Lagarde says.

The global economy is estimated to have grown by 3.7% in 2017, which is a little faster than expected. The IMF has revised its forecasts for 2018 and 2019 up to 3.9%, reflecting increased global growth momentum and the boost expected from the US tax policy changes. However, the IMF is wary. And SA should be very wary. Global growth has not been inclusive enough, with about one fifth of emerging markets and developing countries having watched their per capita incomes decline in 2017.

Lagarde warns that the higher global growth is mostly cyclical, and there is significant uncertainty in the year ahead.

One of the biggest risks to growth is what the IMF calls “the build-up of potentially serious financial-sector vulnerabilities”.

There is growing concern in Washington, Davos and elsewhere about the potential for a financial-market “correction” — code for some sort of financial crisis, especially if monetary policy starts to tighten up in advanced markets.

SA would be particularly vulnerable to such a “correction” because it is so dependent on a constant stream of portfolio inflows into its bond and equity markets, and lately because the rand has had such a strong Cyril Ramaphosa rally.

Goldman Sachs argued in a report last week that SA could be the “big emerging-market story of 2018”, but that’s more or less confined to the rand foreign exchange and domestic bond markets, which it sees as undervalued relative to other emerging markets. Its economists are not nearly as bullish about South African equities and there’s no mention of a big story when it comes to the longer-term, more durable foreign (and local) direct investment that SA needs to get on to a higher growth path.

The IMF’s call is for economies in advanced and emerging markets to use this cyclical growth recovery to “fix the roof while the sun is shining” — to effect the structural reforms required to bring about more sustainable and inclusive economic growth.

The IMF urges reforms to increase productivity, enhance labour-force participation rates, strengthen fiscal buffers and improve governance.

If that applies to fast-growing advanced and emerging markets, how much more does it apply to SA, which has so completely missed out on the strongest and most synchronised global growth recovery since 2010?

SA should certainly be fixing the roof while the global sun is shining. This is the time to gear up the economy while it can take advantage of global growth. The new political leadership should act with speed and resolve to do this.

SA SHOULD CERTAINLY BE FIXING THE ROOF WHILE THE GLOBAL SUN IS SHINING