IMF shaves 1.1% off SA growth forecast

THE OUTLOOK for South Africa has continued to decline, prompting the International Monetary Fund (IMF) to slice the country’s growth forecast by 1.1 percentage points to 2.5 percent for this year.

South Africa is one of a number of emerging and developing economies that grew more slowly than expected over the past few months.

In its World Economic Outlook (WOE), released yesterday, the multilateral lender slashed its September projection for South Africa’s 2012 growth to 2.5 percent, after estimated growth of 3.1 percent last year.

One reason for the disappointing figure is that non-oil commodity prices are expected to fall by 14 percent this year.

The IMF prediction is lower than other recent forecasts.

Johan Els, a senior economist at Old Mutual Investment Group South Africa, yesterday revised his growth prediction for the local economy this year from 3.3 percent to 2.7 percent. Last week Reserve Bank governor Gill Marcus cut her growth estimate for this year from 3.2 percent to 2.8 percent. And confirmation of deteriorating prospects came from the Reserve Bank’s composite leading indicator, released yesterday.

Stanlib economist Kevin Lings said the indicator remained positive, growing 2 percent year on year in November. But he noted: “The annual rate of change is massively down from a peak of 24.2 percent in April 2010.”

The IMF cut the outlook for emerging and developing economies as a whole by 0.7 percentage points to 5.4 percent in the year ahead. The outlook for advanced economies has also been revised downward by a similar amount to 1.2 percent.

But in recent months advanced and emerging economies have changed roles on the global economic stage. The IMF said that growth in advanced economies in last year’s fourth quarter “surprised on the upside”, while emerging markets disappointed.

Stronger growth in advanced economies was driven by US consumers, who “unexpectedly lowered their savings rates”, and by strong fixed investment by US businesses.

Japan’s bounce back from the “supply chain disruptions” caused by the earthquake and tsunami last March was also stronger than anticipated.

“Additionally, stabilising oil prices helped support consumption,” the IMF said. The price of Brent crude oil fell from nearly $127 (R1 000) a barrel in April last year to about $110 over the past few days. Money not spent on petrol and related products can be used to fund other types of consumption.

That the emerging markets slowed more than forecast in the fourth quarter was “possibly due to a greater-than-expected effect of macroeconomic policy tightening or weaker underlying growth”.

The monetary fund’s global growth forecast was revised down 0.7 percentage points to 3.3 percent for 2012.

Elaborating on the global picture, the WOE says: “The

Global GDP growth

Percent quarter over quarter, annualised

12

8

6 4 2 0 -2 -4 -6 -8 -10

07 09 10 11 12 13

Source: IMF near-term outlook has noticeably deteriorated.” It highlights concerns about banking sector losses and high interest rates on the sovereign debt of vulnerable euro zone countries. These factors are proving a drag on growth, the report says.

It notes that bank funding all but dried up in the euro area while capital flows to emerging economies fell sharply and many emerging market currencies “depreciated significantly”.

The rand fell from R6.70 against the dollar at the end of July to a worst level of R8.60 on November 23 before recovering below R8 last week.

The unit was bid at R7.99 at 5pm yesterday, 7.8c weaker than its level on Monday.