The IMF raised its 2022 growth forecast for the SA economy on Tuesday, citing elevated commodity prices and putting it on a small list of countries that are expected to fare better in a darkening global outlook.
In its latest world economic outlook report, the IMF said SA’s GDP was likely to grow 2.3% this year, an upgrade from the 1.9% forecast in April and broadly in line with the Reserve Bank’s projections.
The international lender’s growth forecast for 2023 is unchanged at 1.4%.
The report showed most countries were grappling with inflation and the fallout from Russia’s invasion of Ukraine, forcing the IMF to lower its global economic growth estimates for 2022 and 2023 to 3.2% and 2.9%, respectively.
Even though SA’s outlook has moderately improved, it is expected to be worse than its African peers. The report forecasts African economies, on average, will expand 3.8% in 2022 and 4% in 2024, with oil producer Nigeria growing 3.4% in 2022 and 3.2% in 2023.
SA’s economic underperformance reflects regulatory hurdles and the extremely slow pace of bureaucracy in the energy sector, which economists say will lead to a GDP contraction in the second quarter.
SA’s energy crisis came to a head this month when Eskom imposed stage 6 rolling power cuts, prompting President Cyril Ramaphosa this week to unveil a set of actions that would be required to “fundamentally transform the electricity sector and positioning it for future sustainability”.
Ramaphosa’s plan includes improving the performance of Eskom’s existing fleet of power stations, accelerating the procurement of new generation capacity, massively increasing private investment in generation capacity and enabling businesses and households to invest in rooftop solar.
The shortage of electricity has been a huge constraint on economic growth and job creation and has also deterred investment and reduced SA’s economic competitiveness.
The energy crisis saw the country’s leading indicator of future economic activity fall by 8.5% year on year in May after a revised drop of 5.4% in April.
The indicator, compiled by the Reserve Bank to inform on economic activity six months out, shows the domestic economy remains affected by the floods in KwaZulu-Natal, while there was also a base effect from strong activity a year ago.
The composite leading business cycle indicator for SA’s major trading partners fell 0.9% in April, the latest reading. It reflects several shocks that have hit the world economy and caused overall output to contract in the second quarter.
Russia’s war in Ukraine and higher-than-expected inflation worldwide — especially in the US and major European economies — triggered tighter financial conditions.
The worse-than-anticipated slowdown in China, reflecting Covid-19 outbreaks and lockdowns, contributed to negative spillovers from the Russian war in Ukraine.
Speaking at a virtual media briefing on Tuesday, IMF chief economist Pierre-Olivier Gourinchas said “risks to the outlook are overwhelmingly tilted to the downside”.
The IMF’s forecast is for growth to slow from 6.1% last year to 3.2% in 2022, which is a 0.4 percentage point lower than the April forecast.
Gourinchas warned that if Russia fully shuts down its gas flows to Europe, inflation would rise and global growth decelerate to about 2.6% this year and 2% next.
“The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one,” Gourinchas said.
The IMF report showed that for emerging markets and developing economies, the negative revisions to growth in 2022 and 2023 reflect mainly the sharp slowdown in China’s economy and the moderation in India’s economic growth.
The IMF also warned that inflation “represents a clear risk” for current and future macroeconomic stability and bringing it back to central bank targets should be the top priority for policymakers.
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