INSIDE: The International Monetary Fund (IMF) yesterday slashed South Africa’s growth forecast for the next two years, highlighting political uncertainty as hindering investments into the country. The IMF said it expected South Africa’s gross domestic pro

SA growth slashed again

THE INTERNATIONAL Monetary Fund (IMF) yesterday slashed South Africa’s growth forecast for the next two years, highlighting political uncertainty as hindering investments in the country.

The IMF released its 2018 World Economic Outlook forecasts at an event in Davos, Switzerland, where business leaders and policymakers have gathered for the World Economic Forum.

The IMF said it expected South Africa’s gross domestic product (GDP) to grow by 0.9 percent this year, down from an earlier projection of 1.1 percent.

The international body said the country’s economy would also grow 0.9 percent in 2019, a downgrade of 0.7 percent from prior estimates.

The changes reflect what the IMF calls increased political uncertainty weighing on confidence and investment.

Dave Mohr, the chief investment strategist at Old Mutual Multi-Manager, said political uncertainty was easing improved business confidence, which was the cheapest form of economic stimulus.

“The government needs to stop the unsustainable growth in its debt level, but tax revenues have grown disapprovingly slowly.

“At the same time, the ability to cut spending is limited, and the announcement of free higher education for low-income students just adds to the long list of spending needs,” Mohr said.

Earlier this month, the World Bank said that South Africa’s economy was expected to grow by only 1.1 percent this year. The bank said this was one of the lowest growth rates in sub-Saharan Africa.

Rating agency Moody’s Investors Service last week said that its outlook for sub-Saharan Africa was negative for the coming 12 to 18 months, driven by the region’s subdued and fragile growth recovery, which also weighed on prospects for fiscal consolidation and debt stabilisation.

Moody’s said countries experiencing heightened political and social tension were likely to see spending pressures increase. These countries include Botswana, South Africa and Nigeria, which are due to hold presidential elections in 2018 or 2019.

World growth Although the IMF’s outlook for South Africa was gloomy, its forecast for the rest of the world was upbeat.

The IMF said world output would grow 3.9 percent a year in 2018 and 2019, the strongest since 2011, and an upward revision of 0.2 percentage points from the IMF’s forecasts in October.

The IMF also said that growth in 2017 picked up in 120 economies that together account for about 75 percent of global GDP.

The expected surge in the global economy was expected to be supported by US President Donald Trump’s corporate tax cuts that would provide a short-term shot in the arm, despite fears about rising inequality and overheating financial markets.

Meanwhile, the sweeping management changes at Eskom and news that the ANC’s top officials are discussing President Jacob Zuma’s exit briefly saw the rand yesterday reach levels last seen in May 2015. The local unit briefly touched R12.02 against the dollar before retreating to R12.12 by 5pm.

Annabel Bishop, the chief economist at Investec, said an early Zuma exit could see the rand strengthen to R11.70 to the dollar, and then move towards R11.

“Consumer and business confidence was suppressed last year, but substantial political and policy certainty would likely feed through into the confidence measures, lifting investment, expenditure and GDP growth,” Bishop said.