SA growth outlook slashed as IMF calls for reform

SUB-SAHARAN AFRICA’S GROWTH RATE IS FORECAST TO BE 4.3%, WHICH IS WELL ABOVE THE GLOBAL AVERAGE OF 3.1%

SA’s logistical challenges and its debt burden and high borrowing costs are two big clouds hanging over the economy, the IMF said after it almost halved SA’s growth forecast to just 1% for 2024 — and called for SA to implement reforms and lower its budget deficit.

In its World Economic Outlook Update, which it launched in Johannesburg on Tuesday, the IMF took a more positive view of global prospects than it has for some time, saying the global economy had begun the final descent to a “soft landing”, with inflation declining steadily and growth holding up.

But it expects the US, Europe and UK to cut interest rates only in the second half of 2024, and IMF chief economist PierreOlivier Gourinchas warned in a blog on Tuesday that markets appear excessively optimistic about the prospects for early rate cuts. And while he said risks to growth are more balanced than in 2023, he warned that turbulence may lie ahead.

The IMF had upgraded its SA growth forecast to 1.8% in October, based on reduced loadshedding, but has dialled that back because logistics problems in ports and rail have combined with continued power shortages and other structural impediments to growth.

“The other big cloud hanging over the economy is the debt burden and the very high borrowing costs. That is part of what is constraining spending and investment,” said IMF research department division chief Daniel Leigh in an interview.

A clear move towards a lower budget deficit would help to lower borrowing costs and would create resources to help the most vulnerable, he said.

The IMF expects SA’s growth rate to improve to 1.3% in 2025 as bottlenecks ease, though this is 0.3 percentage points lower than it forecast in October. The

IMF in October described the global economy as “limping not sprinting”. But it has now upped its forecast for global growth 0.2% to 3.1% for this year, rising to 3.2% in 2025.

This is still well below the historical average of 3.8% in the two decades before the Covid-19 pandemic.

Gourinchas said the global economy has continued to demonstrate resilience and the chances of a soft landing (in which inflation is brought down without a sharp growth slowdown) have increased.

Disinflation could happen faster than anticipated, with supply chains normalising and labour market conditions easing. That would ease global financial conditions, which would help capital flows to emerging markets. On the downside the IMF warned of high debt levels globally and the risk that loose fiscal policy could temporarily boost growth but at the risk of more costly adjustments later on.

It urged a “renewed focus on fiscal consolidation to rebuild budgetary capacity to deal with future shocks, raise revenue for new spending priorities and curb the rise of public debt” and it called for targeted and carefully sequenced structural reforms to reinforce productivity growth and debt sustainability.

However, with many countries facing elections in 2024, SA included, “we could see slowerthan-expected implementation of reforms, including fiscal tightening”, Leigh said.

The IMF lifted its forecast for the US economy to 2.1%, moderating to 1.7% next year.

It sees the advanced economies growing 1.5% this year, while emerging market and developing economies will grow 4.1%, rising to 4.2% next year.

Sub-Saharan Africa’s growth rate is forecast to be 4.3%, which is well above the global average of 3.1%, but given higher population growth rates in the region, Sub-Saharan’s per capita growth rate is about the same as advanced economies at about 1.5%. That means Sub-Saharan Africa will not make progress in converging towards higher income per capita levels, and the region needs to implement faster reforms to achieve this, Leigh said.

THE OTHER BIG CLOUD HANGING OVER THE ECONOMY IS THE DEBT BURDEN AND THE VERY HIGH BORROWING COSTS