IMF has some hope for SA economic growth

The International Monetary Fund IMF has some hope for South Africa according to its recent adjustment of the country’s economic growth as part of its World Economic Outlook.

It previously said the continuing power crisis would be a drag on economic growth in 2023.

Growth decline

In South Africa, growth is expected to decline to 0.3% in 2023, with the decline reflecting power shortages, although the forecast has been revised upward by 0.2 percentage points since the April 2023 outlook, thanks to resilience in services activity in the first quarter, the IMF said.

The IMF expects gross domestic product (GDP) to rebound to 1.7%, slightly lower than the 1.8% forecast in April.

While the IMF forecast for South Africa is in line with the South African Reserve Bank’s revised GDP forecast from 0.3% to 0.4%, the central bank has less faith in the country’s growth prospects for next year, keeping its GDP forecast unchanged at 1.0% for 2024 and at 1.1% for 2025.

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IMF projections for global growth

According to the outlook, the IMF expects global growth to fall from an estimated 3.5% in 2022 to 3.0% in 2023 as well as 2024.

“While the forecast for 2023 is modestly higher than predicted in the April outlook, it remains weak by historical standards. The rise in central bank policy rates to fight inflation continues to weigh on economic activity.

“Global headline inflation is expected to fall from 8.7 percent in 2022 to 6.8 percent in 2023 and 5.2 percent in 2024. Underlying (core) inflation is projected to decline more gradually and forecasts for inflation in 2024 have been revised upward.”

The balance of risks to global growth remains tilted to the downside.

The IMF expects inflation to remain high and even increase if further shocks occur, including the war in Ukraine intensifying and extreme weather-related events, triggering more restrictive monetary policy.

“Financial sector turbulence could resume as markets adjust to further policy tightening by central banks.

Inflation

China’s recovery could slow, in part as a result of unresolved real estate problems, with negative cross-border spillovers. Sovereign debt distress could spread to a wider group of economies.”

However, there is a bit on good news too: the IMF says inflation could fall faster than expected, reducing the need for tight monetary policy and domestic demand could again prove more resilient.”

In most economies, the priority remains achieving sustained disinflation while ensuring financial stability and therefore, central banks should remain focused on restoring price stability and strengthen financial supervision and risk monitoring, the IMF says.

“Should market strains materialize, countries should provide liquidity promptly while mitigating the possibility of moral hazard. They should also build fiscal buffers, with the composition of fiscal adjustment ensuring targeted support for the most vulnerable. Improvements to the supply side of the economy would facilitate fiscal consolidation and a smoother decline of inflation toward target levels.”