South Africa’s unstable power supply and the government’s decision to slow down growth in spending will limit the country’s economic growth‚ the International Monetary Fund (IMF) says.
The Washington-based body expects SA to grow 2% this year – the same as the Treasury – and 2.1% next year. The 2% growth is much lower than the 5% SA needs to reduce high unemployment.
“Even this growth is slower than previously expected‚ with the net terms-of-trade improvement offset by fiscal consolidation and continuing problems in the electricity sector‚” the IMF said in its sub-Saharan Africa regional economic outlook released on Tuesday.
Despite the fiscal consolidation’s negative effect on economic growth‚ the government should continue with it‚ as adopting more fiscal expansion would channel needed funding away from growth-enhancing fixed investment projects to current spending‚ IHS senior economist in SA Thea Fourie said.
The benefits of fiscal consolidation include less borrowing‚ a stable credit rating and less dependence on foreign funding as the government is able to raise the necessary resources internally‚ Capital Economics Africa economist John Asbourne said.
The fall in oil prices has been beneficial for oil-importing countries and detrimental to oil exporters through loss of revenue. The fall, from more than $100 a barrel in the middle of last year to about $64 a barrel‚ should still benefit oil importers.
“Where the decline in prices is passed on to consumers‚ for instance in SA‚ consumption will increase to the extent that households and firms spend part of these savings; this‚ in turn‚ would increase revenue from taxes on goods and services‚” the IMF said.
The Barclays commodity research team on Tuesday revised its forecast for Brent crude oil for this year to $60 a barrel from $52 a barrel on Middle East geopolitical unrest and lower US natural gas prices‚ among other factors.
It forecasts oil to average $59 a barrel in the second quarter‚ $61 a barrel in the third quarter‚ and $66 a barrel in the fourth quarter of this year.
Sub-Saharan Africa is expected to grow 4.5% this year and 5.1% next‚ supported by improving global economy and infrastructure investments.
However‚ this expansion would be lower than the region had registered in recent years‚ mainly reflecting the adverse effect of the sharp decline in oil and other commodity prices.
A “bright spot” in the region was the increase in regional trade, the share of which had almost doubled over the last 20 years‚ although from a low base of 2% of gross domestic product to 3.5% .
Trade subregions were developing in the region‚ the IMF said. The fund identified Côte d’Ivoire‚ Nigeria‚ Kenya and SA as hubs.
There appeared to be commitment to improving regional trade by leaders in the region‚ with ministers from the Southern African Development Community having met to discuss integration and industrialisation.
Unstable power supply, spending constrains limiting growth
South Africa’s unstable power supply and the government’s decision to slow down growth in spending will limit the country’s economic growth‚ the International Monetary Fund (IMF) says.
The Washington-based body expects SA to grow 2% this year – the same as the Treasury – and 2.1% next year. The 2% growth is much lower than the 5% SA needs to reduce high unemployment.
“Even this growth is slower than previously expected‚ with the net terms-of-trade improvement offset by fiscal consolidation and continuing problems in the electricity sector‚” the IMF said in its sub-Saharan Africa regional economic outlook released on Tuesday.
Despite the fiscal consolidation’s negative effect on economic growth‚ the government should continue with it‚ as adopting more fiscal expansion would channel needed funding away from growth-enhancing fixed investment projects to current spending‚ IHS senior economist in SA Thea Fourie said.
The benefits of fiscal consolidation include less borrowing‚ a stable credit rating and less dependence on foreign funding as the government is able to raise the necessary resources internally‚ Capital Economics Africa economist John Asbourne said.
The fall in oil prices has been beneficial for oil-importing countries and detrimental to oil exporters through loss of revenue. The fall, from more than $100 a barrel in the middle of last year to about $64 a barrel‚ should still benefit oil importers.
“Where the decline in prices is passed on to consumers‚ for instance in SA‚ consumption will increase to the extent that households and firms spend part of these savings; this‚ in turn‚ would increase revenue from taxes on goods and services‚” the IMF said.
The Barclays commodity research team on Tuesday revised its forecast for Brent crude oil for this year to $60 a barrel from $52 a barrel on Middle East geopolitical unrest and lower US natural gas prices‚ among other factors.
It forecasts oil to average $59 a barrel in the second quarter‚ $61 a barrel in the third quarter‚ and $66 a barrel in the fourth quarter of this year.
Sub-Saharan Africa is expected to grow 4.5% this year and 5.1% next‚ supported by improving global economy and infrastructure investments.
However‚ this expansion would be lower than the region had registered in recent years‚ mainly reflecting the adverse effect of the sharp decline in oil and other commodity prices.
A “bright spot” in the region was the increase in regional trade, the share of which had almost doubled over the last 20 years‚ although from a low base of 2% of gross domestic product to 3.5% .
Trade subregions were developing in the region‚ the IMF said. The fund identified Côte d’Ivoire‚ Nigeria‚ Kenya and SA as hubs.
There appeared to be commitment to improving regional trade by leaders in the region‚ with ministers from the Southern African Development Community having met to discuss integration and industrialisation.
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