Next year will be worse, says IMF
Lender predicts GDP will only expand by 1.3%
IF ECONOMIC growth in South Africa this year is bad news, 2016 is set to be even worse, according to the International Monetary Fund (IMF).
Before Finance Minister Nhlanhla Nene publishes revised growth forecasts, the Washingtonlender cut its estimate for this year to 1.4 percent from 2 percent. More concerning was its projection that gross domestic product (GDP) will expand just 1.3 percent next year, which would be the slowest pace since a recession in 2009.
China slump
China’s slump is hurting South Africa in two ways – curbing demand from its biggest trading partner and reducing revenue from platinum, iron ore and other metals that account for about half of the nation’s exports. With thousands of mining jobs threatened and an electricity shortage curbing output, business confidence is at a 22-year low.
“The IMF forecast is on the negative side, but I don’t think it’s necessarily far-fetched,” Johan Rossouw, the group economist at Vunani Securities, said. “We have an underlying problem on the demand side, a lack of confidence and everything that goes with that. But we also have a problem on the production side where we are not competitive enough and have capacity problems.”
The IMF’s projections are more pessimistic than those from the World Bank and South Africa’s central bank. The World Bank is forecasting GDP growth of 1.5 percent this year and 1.7 percent in 2016, while the Reserve
With mining jobs at risk and a power shortage curbing output, business confidence is at a 22-year low.
Bank estimates 1.5 percent and 1.6 percent, respectively.
Compared with previous bouts of currency depreciation, the rand’s 13 percent slide against the dollar this year has had a relatively muted effect on exports, mainly because of weak global demand and power shortages.
Recession fears are also coming to the fore. While Reserve Bank governor Lesetja Kganyago said last week he did not expect GDP to contract for a second consecutive quarter in the three months to September, manufacturing output had declined in six of the first eight months of the year. The industry makes up 13 percent of the economy.
“We hope to avoid a recession, but whether we have one or not, we’ll probably still have a situation where next year will be the third year of growth being around 1.5 percent,” Elna Moolman, an economist at Macquarie Group, said from Johannesburg last week. “That means you are not creating work and you are putting yourself in a very difficult fiscal position.”
Slower growth makes Nene’s fiscal targets more difficult to achieve. He is due to publish revised estimates in his mediumterm budget on October 23 at a time when credit-rating companies scrutinise the nation’s finances for any slide away from fiscal tightening. Nene has pledged to narrow the budget deficit to 2.5 percent of GDP in the year to March 2018 from an estimated 3.9 percent this year.
“There’s immense pressure on the National Treasury right now, especially as we’re going into local government elections, and the global context, which is much less supportive than before,” Peter Worthington, an economist at Barclays Africa Group’s Johannesburg-based investment banking unit, said last week. – Bloomberg