IMF downbeat on SA as it warns global growth worst since 2009

THE International Monetary Fund (IMF) downgraded SA’s economic growth forecasts yesterday, as expected, but its pessimism over next year’s outlook surprised as it bucks the trend.

It slashed SA’s forecast for this year to 1.4% from 2% in July, and for next year, lowered it to 1.3% from 2.1%.

The projections are lower than those of the South African Reserve Bank and the World Bank. The Reserve Bank sees the economy growing 1.5% this year and 1.6% next year, while the World Bank forecasts 1.5% and 1.7%, growth respectively.

The IMF was generally downbeat in its world economic outlook report.

It cut the growth forecasts for the global economy, warning of increasing risks from the slowdown in China, which is dragging other emerging markets down with it.

The global economy would expand just 3.1% this year and 3.6% next year, the IMF predicted, revising downward its previous forecasts by 0.2 percentage points in both cases.

Even though wealthy countries were showing signs of recovery, the world economy was on track for its worst year since the global recession of 2009, the IMF said. Emerging economies were going through their fifth consecutive annual slowdown, it said.

In SA, growth would be weighed down by load shedding, lower commodity prices and increased import competition in sectors such as steel, IMF senior resident representative in SA, Axel Schimmelpfennig said.

Growth would have been even lower had it not been for the “base effects” from a protracted strike at platinum mines and manufacturing last year, he said.

“SA had no major strikes this year, and this automatically lifts growth,” Mr Schimmelpfennig said.

But there were more factors dragging down SA, such as deteriorating corporate profitability and business confidence, which undermined investment, he said.

A worsening employment outlook and weaker consumer confidence were putting pressure on private consumption, while policy uncertainty and the effects of policy initiatives such as new visa requirements were weighing on sentiment, Mr Schimmelpfennig said.

The pessimism over growth

next year reflected a number of things. “The same factors holding back growth in 2015 will continue; in particular, the impact of lower commodity prices is only starting to materialise and will have a persistent impact,” he said.

However, SA could implement structural reforms to boost growth, including removing infrastructure bottlenecks in the power sector, reforms to education, labour and product markets to raise competitiveness and productivity, and improving on the government’s service delivery.

The IMF’s revisions came as a separate business confidence index fell to a 22-year low, reflecting pedestrian economic growth and a slow pick-up in exports.

The 2.7-point decline in the South African Chamber of Commerce and Industry’s (Sacci’s) business confidence index to a low of 81.6 was a “wake-up call” to policy makers that “something extraordinary” needed to be done, Sacci economist Richard Downing said. With AFP