Higher commodity prices helped SA escape a downgrade of its GDP growth forecasts by the IMF for the next two years, though it is still entrenched among underperformers.
In its latest global economic outlook report on Tuesday showed the IMF has revised downwards its outlook for most countries and regions due to the shock from the Russian invasion of Ukraine, which has boosted oil and food prices. The exception was commodity exporters supplying energy and food.
The IMF warned that inflation will remain elevated longer than it expected, suggesting that central banks should “adjust their policies decisively”. This could put pressure on emerging markets such as SA to follow suit to avoid weakening currencies that may put more upward pressure on prices of imported goods. It will also make it harder to service debts that were accumulated as emerging markets sought to mitigate the economic effects of the Covid-19 pandemic.
The fund said SA’s economy will grow 1.9% in 2022 and 1.4% the next year, unchanged from its forecast in January. The 2022 prediction is 0.3 percentage point lower than the forecast in October.
Its outlook for inflation, at an average 5.7% in 2022 and 4.6% in 2023, is broadly in line with the Reserve Bank’s forecast. This may give governor Lesetja Kganyago room to keep the pace of interest rate hikes gradual even as other economies such as the US move quicker to tighten policy.
While SA is only among a handful of countries not to have their outlook lowered, it remains among the worst performers, having not yet returned to its pre-Covid-19 levels. The dangers to its prospects were further highlighted as Eskom said it was intensifying rolling blackouts. A lack of reliable power supply has been consistently cited as one of the major risks for the economy.
The IMF report shows that SA, the most industrialised economy on the continent, is set to perform worse than its African peers. The Washington-based lender said African economies will on average expand 3.8%, with oil producer Nigeria to 3.4% in 2022 and 3.1% in 2023.
Speaking at a virtual press briefing on Tuesday, the IMF’s new chief economist, Pierre-Olivier Gourinchas, said risks to the outlook are high.
The Russian invasion of Ukraine raises the chances of even lower growth and more rapid price rises this year — upending the IMF’s view that there would be a stronger recovery from the pandemic in 2022 — and is likely to keep the divergence between emerging and advanced economies persisting.
The fund’s forecasts showed global growth of GDP this year of 3.6%, down 0.8 percentage points since the fund’s January projections and 1.3 percentage points lower compared with six months ago. In 2021, global growth was estimated at 6.1%, the fund said. Beyond 2023, global growth is forecast to decline to about 3.3% over the medium term.
Gourinchas said the global slump in GDP reflects the direct effect of the war on Ukraine and sanctions on Russia, with both countries projected to experience steep contractions. He said the EU has been revised downward by 1.1 percentage points due to the indirect effects of the war, making it the second- largest contributor to the overall downward revision.
It lowered the outlook for Germany, the biggest economy in a region that is SA’s largest trading partner, by 1.7 percentage points to 2.1%.
The IMF warned that an immediate oil and gas embargo against Russia will raise inflation further, hit European countries, the US and emerging economies hard and require even higher interest rates.
“We are facing a slowdown in growth and are facing elevated inflation.”
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