The IMF has left its growth forecast for SA unchanged in an update in which it held global growth at 3.2% for this year, but cautioned that borrowing costs could stay high for even longer than previously expected, risking the “soft-landing” scenario.
The IMF also urged that fiscal challenges had to be tackled urgently so that countries could rebuild buffers and gain the policy space to address issues such as climate change. It again sounded warnings about the rise of protectionist trade and industrial policies which hampered global growth and prosperity.
Though world trade growth is expected to recover to about 3.25% annually in 2024-25 in line with global growth, after stagnating last year. IMF chief economist Pierre-Olivier Gourinchas said there had been an explosion in the number of protectionist measures to more than 3,000 last year, from 1,000 in 2019. These reduced bilateral trade and impacted the diffusion of knowledge and capital flows, leaving countries more vulnerable, he said.
He also said “bumps in the road” of disinflation could see the US Federal Reserve keep rates higher for longer, putting pressure on currencies and capital flows, particularly for emerging markets and developing economies. Service price inflation was now expected to be more persistent and commodity prices higher, the IMF said in its July World Economic Outlook update.
“As output gaps start to close and inflation recedes, policymakers face two tasks: persevering with restoring price stability and addressing the legacies of recent crises, including replenishing lost buffers and durably uplifting growth,” the report said.
It also warned, without identifying specific countries, of the effect that elections around the globe this year could have on the outlook: “The potential for significant swings in economic policy as a result of elections this year, with negative spillovers to the rest of the world, has increased the uncertainty around the baseline, said the report.
Though global growth forecasts are broadly unchanged, the IMF economists pointed to “changes under the hood”, with the US slowing, Europe picking up and forecasts lifted for China and India — though China’s growth is expected to decelerate to a multi-decade low of just 3.3% by 2029.
Sub-Saharan Africa’s growth outlook has been revised slightly down for this year, to 3.7%, on weaker growth in oil-dependent Nigeria, but slightly up to 4.1% for next year.
The IMF sees SA’s economy growing 0.9% this year and 1.2% next year. After load-shedding and logistics constraints prompted sharp downward revisions in January, the fund has not revised its forecasts since its April outlook, when it reduced its forecasts for 2024 and 2025 slightly, but said SA’s medium-term growth would average just 1.4%.
It has not commented on the outcome of SA’s general election but officials did reiterate in early June that SA’s economy continued to face challenges and it was a priority to remove bottlenecks to growth through an ambitious structural reform programme. SA must also put public debt on a sustained downward path through fiscal consolidation, spokesperson Julie Kozack said.
On the positive side, decisive monetary policy tightening had helped to bring inflation down and inflation must continue to be carefully managed back to target.
An IMF staff team paid a routine visit to SA recently and though the fund would normally be issuing its usual Article IV report on SA later this year, the date is usually delayed in an election year.
In contrast to its full spring and autumn World Economic Outlook reports, the IMF updates forecasts for only some countries in the briefer July update. The largest downward growth revision was to Saudi Arabia, because of Opec+ oil production cuts, but while the fund’s economists expect energy commodity prices to fall by almost 5% in 2024, they see non-fuel commodity prices up 5% this year.
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