Medium-term outlook weakest in decades — IMF
• Fund shaves forecast for SA growth to 0.9% this year
The IMF has kept its growth forecasts for SA and for the global economy broadly unchanged, saying the risk of a hard landing for the global economy has faded – but medium-term prospects are the weakest in decades.
It warns that commodity prices could slide further, with slowing growth in China and Europe weighing on non-fuel commodities such as base metals.
But while China’s prospects are weakening, many other large emerging markets are performing strongly, says the IMF, and their footprint on the global economy is increasing as some are benefiting from a shift in global supply chains and rising US-China trade tensions.
The IMF in January slashed its SA growth forecasts for 2024 and 2025, citing the negative effects of rail and port constraints. It has lopped a further fraction off the 2024 growth number, which it now sees at just 0.9% — lower than the Reserve Bank’s latest 1.2% forecast — and kept the 2025 number unchanged at 1.2%.
By contrast, Sub-Saharan Africa is one of the few regions of the world where the IMF expects the growth rate to lift over the medium term: growth is forecast to rise from 3.4% last year to an unchanged 3.8% this year and 4% in 2025. The IMF will provide a more detailed and thematic overview of the region, including SA, in its new SubSaharan Africa outlook, which is due out on Friday.
“Despite gloomy predictions, the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose,” IMF chief economist Pierre-Olivier Gourinchas said on Tuesday.
The fund now projects less economic scarring from the Covid-19 pandemic and it expects the major central banks to start cutting rates in the second half of 2024 as inflation heads down towards target. However, the positive effects of central bank easing in many economies are expected to be offset by a tightening of fiscal policies aimed at curbing high government debt, and this will weigh on growth.
And while the IMF now sees only a slim chance of a hard landing for the global economy, it warns of a gradual erosion in global growth prospects over the medium to longer term.
The global economy is expected to grow at the same pace of 3.2% in 2024 and 2025 as it did in 2023, with the medium-term outlook at 3.1%. This is well below the annual average of 3.8% in the two
decades before the Covid-19 pandemic, which means poorer countries now have even less chance of catching up with their richer counterparts.
“Medium-term prospects for growth in world output and trade remain the lowest in decades, with the pace of convergence towards higher living standards slowing for middleand lower-income countries,” the report says.
That reflects ageing populations and a slowdown in productivity growth in advanced economies, but it’s also the result of geopolitical tensions that are slowing cross-border flows of trade, capital, technology and people, so there is less scope for efficiency gains, says the report.
In the near term, it urges central banks “to ensure that inflation touches down smoothly, by neither easing policies prematurely nor delaying too long”.
It also urges governments to implement fiscal consolidation, to “rebuild room for budgetary manoeuvre … and ensure debt sustainability”.
Among the issues in the spotlight at this week’s meetings in Washington are efforts to improve the debt restructuring process for low-income countries such as Ghana and Zambia, both of which recently reached agreement on bailout packages.
A meeting on the sidelines of Group of 20 finance ministers and central bank chiefs will be important for SA, which will take over from Brazil as chair of the group in 2025 and host of the annual leaders summit.
The northern hemisphere spring meetings are a smaller event than the IMF/World bank annual meetings in October, but they bring together the finance ministers and central banks of the IMF’s 190 member countries as well as leading public and private sector economists.