The IMF has lifted its forecast for SA’s 2023 growth rate to 0.3% from the 0.1% it expected in April, citing resilience in the services sector in the first quarter.
But it still expects growth to be well down on 2022 because of power shortages and it has cut its 2024 forecast slightly, to 1.7%.
SA still lags far behind the 4% average at which the IMF sees emerging market and developing economies growing in 2023 — or 3.5% for Sub-Saharan Africa — rising to 4.1% next year.
The fund’s new forecast for SA comes after the Reserve Bank last week upgraded its forecast to 0.4% for 2023, from 0.3% at the time of its last monetary policy committee meeting in May, but left its 2024 forecast unchanged at 1%.
In its World Economic Outlook update released on Tuesday, the IMF paints a slightly more optimistic picture than it did in its April outlook, describing the global economy as “on track but not yet out of the woods”.
Global growth of 3% is now expected in both 2023 and 2024, down from 3.5% in 2022. The forecast has been revised “modestly” upwards but is still weak by historical standards, the IMF said, with the rise in central bank rates to fight inflation weighing on growth. Global inflation is expected to fall from an average 8.7% last year to 6.8% this year and 5.2% next.
IMF economic counsellor and director of the IMF research department Pierre-Olivier Gourinchas said stronger growth and lower-than-expected inflation are welcome news, suggesting the global economy is headed in the right direction.
“Yet while some adverse risks have moderated, the balance remains tilted to the downside,” he wrote in a blog. There are growing signs that global activity is losing momentum, with policy interest rates now in contractionary territory.
Inflation battle
“Core inflation remains above central banks’ targets and will decline only gradually. “Clearly the battle against inflation is not yet won,” he said.
Financial conditions have eased despite monetary policy tightening and the dollar has depreciated, providing some relief to emerging and developing countries, Gourinchas said. Going forward, however, “there is a danger of a sharp repricing — should inflation surprise to the upside or global risk appetite deteriorate — causing a flight towards dollar assets, higher borrowing costs and increased debt distress”, he said.
Interest rates have already peaked in some markets, but it is critical to avoid easing rates prematurely, before underlying inflation shows clear and sustained signs of cooling, Gourinchas said.
He also warned that after years of heavy fiscal support in many countries, it is now time to restore fiscal buffers and put public debt dynamics on a more sustainable footing.
Labour markets remain a global bright spot with unemployment rates below and employment rates above pre-Covid-19 levels in many economies. Though wage inflation has increased, it remains behind price inflation in most countries, he said, though this means real wages have declined in advanced and emerging market economies. The risk is that firms might reverse course and cut employment if economic conditions deteriorate.
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