ECONOMIC GROWTH Muted at best

The new year does not look more positive than 2014 for the global economy or for SA.

Things are off to an uninspiring start with the main global lenders revising economic growth prospects downwards.

The consequence for SA will be economic growth that is way below its potential. National treasury estimates economic growth at 2,5%.

The World Bank has cut its global growth forecast for 2015 to 3% from 3,4% earlier and the International Monetary Fund (IMF) has revised its projection from 3,8% to 3,5%.

Outlooks for next year have also been revised downwards but are higher than 2015’s.

The IMF has also cut SA’s economic growth forecast for 2015, from 2,3% to 2,1%, and that for 2016 from 2,8% to 2,5%.

These downward revisions indicate that the oil price decline is not lifting the IMF’s concerns about the structural constraints to economic growth, says Macquarie Securities economist Elna Moolman. “The shortage of electricity could potentially overshadow the benefit of the oil price reduction.”

Capital Economics’ Jack Allen says the revision is not surprising and is now closely in line with his firm’s forecast of 2% growth.

The World Bank and IMF may not have the same growth projections, which has to do with differences in economic models, but the message is the same: things will not improve as quickly as many have been hoping. Countries around the world are now facing new challenges, the most pertinent being the lower oil price.

The IMF says oil prices, which are hovering just below US$50/barrel, have fallen by about 55% since September 2014 due mainly to “unexpected” weak demand and the Organisation of the Petroleum Exporting Countries’ decision to maintain production levels.

The IMF says that for many oil importers, the boost from lower oil prices is less than in advanced economies as more of the “related windfall gains” accrue to governments in the form of lower energy subsidies and levies that may be used to boost public finances.

Lower oil prices mean reduced fuel costs and moderating inflation for emerging countries like SA. This has resulted in improving consumer disposable incomes.

Allen says SA will benefit from lower oil prices, which will lead to a further slowdown in inflation and boost consumers’ real incomes. The Reserve Bank should be able