By Ntsakisi Maswanganyi, Business Day Live with AFP
Photo: Reuters on BDLive
THE International Monetary Fund (IMF) has slashed SA’s economic growth forecast to less than 1% this year, making it one of the more pessimistic.
As the economy would grow at its slowest pace since the recession seven years ago, investments would be crippled and joblessness would persist, the IMF said on Tuesday in its World Economic Outlook update.
In October it had projected growth of 1.3%.
South Africans would be worse off this year than they were last year, IMF senior representative in SA Axel Schimmelpfennig said.
The average gross domestic product (GDP) per South African was shrinking given that population growth was above that of the economy, Mr Schimmelpfennig said.
He said this meant that it would be "more difficult to find jobs, and some may be faced with lay-offs. Investment may also be subdued."
The outlook for next year was lowered to 1.8% from 2.1%.
Declining commodity prices, weakening business and consumer confidence, anticipated interest rate hikes, the drought, policy uncertainty and electricity bottlenecks had contributed to the growth revision, Mr Schimmelpfennig said.
Market research company Frost & Sullivan saw the economy growing between 0.8% and 0.9% this year on lacklustre demand, a weak rand, rising inflation and interest rates, and limited export demand, particularly for manufactured goods, its economist Craig Parker said.
"It will take a lot more stimulus and for these factors to improve if the economy is going to grow above 1%," he said.
Structural reforms were needed to raise SA’s growth rate to higher than the 5% aspired for in the National Development Plan, the IMF said.
"These include improving electricity supply, enhanced competition in product markets, a more inclusive labour market, and … an education system that provides SA’s youth with the best education possible," Mr Schimmelpfennig said.
While the depreciation in the rand reflected global factors the fact that the currency had weakened more than those of its peers was an indication that "SA specific factors" were weighing it down, he said. The shock sacking of former finance minister Nhlanhla Nene crashed the rand to more than R15/$.
The IMF’s outlook was generally downbeat. Sub-Saharan Africa is forecast to grow at 4% this year, down from an earlier projection of 4.3%.
The global economic-growth outlook for this year was reduced from 3.6% to 3.4%, while that for next year was revised from 3.8% to 3.6%.
The global growth revisions to a large degree reflect a slowdown in emerging economies.
Global economic growth could be lower than expected if China slows further, higher US interest rates cause a rise in risk aversion and sharp drops in emerging-market currencies, and if geopolitical tensions escalate.
Economic growth in China is expected to slow down from an estimated 6.3% this year to 6% next year. Lower Chinese growth implies the country will demand fewer minerals, which will negatively affect SA’s own economic growth, but that may be offset by better growth in the eurozone.
Some of SA’s peers in the Brazil, Russia, India, China, SA (Brics) economic bloc are worse off. Russia and Brazil are forecast to be in recession this year and experience little to no growth next year.
The IMF said the sharp collapse in the price of oil was proving more of a drag on the global economy than a stimulus. The financial strains on exporters and the deep investment cutbacks in the sector were more than offsetting the expected gains from cheap oil enjoyed by major importers such Japan and the US, it said.