IMF cuts SA’s economic growth projection – again

The IMF has cut its economic growth projection for South Africa for the second time this year in its World Economic Outlook. In January, the IMF cut the country’s growth forecast to 1.0% from 1.8% and now again to only 0.9%.

The International Monetary Fund (IMF) published its 2024 World Economic Outlook last week, slashing its gross domestic product (GDP) growth projections for South Africa. The IMF also reduced its projections for 2025 by 0.1 percentage points to 1.2% and projections to 2029 to just 1.4%.

South Africa’s GDP outlook is the second lowest in Sub-Saharan Africa after the 0.5% predicted for Equatorial Guinea. In 2023 South Africa’s GDP only grew by 0.6%.

Although the report does not give detail about the reasons for the cut in the projected growth rate, reasons for the January cut were rail and port disruption at Transnet and Eskom’s electricity woes. The national election this year is also not expected to help the economy grow.

Meanwhile, water supply has also become a challenge, though load shedding is suspended amid warnings that this does not mean the end of power cuts. Many companies are cutting production forecasts due to Transnet’s ongoing problems that will not be resolved soon although the private sector has jumped in to help.

In addition, the IMF projects that inflation and unemployment will continue to be a problem for South Africa for the rest of the year, predicting that inflation will average 4.9%, which is higher than its initial projection of 4.5% and higher than the 4.7% local economists forecast.

According to the IMF, the country’s inflation rate will only reach the target of 4.5% set by the South African Reserve Bank (Sarb) next year, which is in line with economists latest statements that inflation will not decrease sufficiently this year for the Sarb to cut the repo rate.

The IMF also expects unemployment to increase to 33.5% in 2024 and 33.9% in 2025.

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Global growth steady but slow

However, the global picture looks much better. IMF economic councillor, Pierre-Olivier Gourinchas, said at a press conference that the baseline forecast for the world economy is to continue growing at 3.2% during 2024 and 2025, at the same pace as in 2023.

Growth in advanced economies is expected to accelerate from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025 and will be offset by a modest slowdown in emerging market and developing economies from 4.3 percent in 2023 to 4.2 percent in both 2024 and 2025.

Global growth reached a turning point at the end of 2022 at 2.3%, after median headline inflation peaked at 9.4%.

However, Gourinchas said the forecast for global growth five years from now, at 3.1%, is at its lowest in decades. Global inflation is forecast to decline steadily, from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies.

The IMF expects core inflation in general to decline more gradually and Gourinchas says the global economy has been surprisingly resilient, despite significant central bank interest rate hikes to restore price stability.

“The journey has been eventful, starting with supply-chain disruptions in the aftermath of the pandemic, an energy and food crisis triggered by Russia’s war on Ukraine, a considerable surge in inflation, followed by a globally synchronized monetary policy tightening. “

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Risks to outlook broadly balanced

The IMF says risks to the outlook are broadly balanced. “Risks to the global economic landscape diminished since October 2023, leading to a broadly balanced distribution of possible outcomes around the baseline projection for global growth, from a clear downside tilt in the outlook for April and October.

With inflationary pressures abating more swiftly than expected in many countries, risks to the inflation outlook are now also broadly balanced. The IMF says in the outlook that overall, there is scope for further favourable surprises, but numerous adverse risks pull the distribution of outcomes in the opposite direction.

Downside risks include new commodity price spikes amid regional conflicts, persistent inflation and financial stress, China’s recovery faltering, disruptive fiscal adjustment and debt distress, distrust of government eroding reform momentum: and geoeconomic fragmentation intensifying.

Upside risks with more favourable outcomes for the global economy, on the other hand, could arise from a short-term fiscal boost in the context of elections, further supply-side surprises, allowing for faster monetary policy easing, spurs to productivity from artificial intelligence and structural reform momentum gathering.