THE International Monetary Fund (IMF) warned on Tuesday that continued policy uncertainty and labour instability in South Africa‚ coupled with weak global economic activity‚ would drag down growth this year‚ prompting it to cut its gross domestic product (GDP) growth forecasts for this year and next.
The IMF’s projection of 2.3% for this year jars with the Treasury’s more optimistic forecast of 2.7% growth. It is also well below the 5% and above required to give meaning to the National Development Plan.
The IMF revised its outlook for South Africa’s economic growth significantly downward to 2.3% in its latest World Economic Outlook report‚ from a forecast of 2.8% in January.
The growth forecast for next year was cut to 2.7% from 3.3%. Growth would be driven by improvements in global demand although risks existed that actual growth could be lower.
It said these forecasts could be revised even lower if strikes continued. The IMF warned that although global economic circumstances would play a role in South Africa’s economy growing only moderately this year‚ it would be domestic issues such as “policy uncertainty” and “industrial tensions” that would be the “largest” downside risks to economic growth.
The 11-week-long platinum strike over wages‚ which has shut mines in the Rustenburg area‚ is the worst strike in South Africa’s democratic history. Economists said the revisions were worrying. “The revisions imply that ... we urgently need to address our structural problems that stifle the economy‚” said Renaissance Capital economist Thabi Leoka.
Rand Merchant Bank economist Carmen Nel said the IMF’s view that downside risks to its economic growth forecast existed was important‚ “particularly if external conditions force the Reserve Bank to tighten policy faster or by more‚ which does not seem to be anyone’s base case”. The Bank surprised the market in January when it hiked the repo rate by 50 basis points to 5.5%. At its meeting last month‚ when it held rates steady‚ governor Gill Marcus warned that more hikes were likely.
Emerging-market currencies could come under increased pressure once interest rates start rising in the US – which markets expect could happen in the second half of next year.
“South Africa ... should prepare to weather further tightening of global financing conditions by preserving their budget flexibility and‚ where vulnerabilities are of particular importance‚ by tightening policies‚” the report said.
Barclays Africa senior economist Peter Worthington said that although the IMF’s statement suggested it was arguing for a tightening of fiscal policy‚ this was unlikely to happen before next year’s budget in February. — BDLive
Gloomy growth forecast for SA
The IMF’s projection of 2.3% for this year jars with the Treasury’s more optimistic forecast of 2.7% growth. It is also well below the 5% and above required to give meaning to the National Development Plan.
The IMF revised its outlook for South Africa’s economic growth significantly downward to 2.3% in its latest World Economic Outlook report‚ from a forecast of 2.8% in January.
The growth forecast for next year was cut to 2.7% from 3.3%. Growth would be driven by improvements in global demand although risks existed that actual growth could be lower.
It said these forecasts could be revised even lower if strikes continued. The IMF warned that although global economic circumstances would play a role in South Africa’s economy growing only moderately this year‚ it would be domestic issues such as “policy uncertainty” and “industrial tensions” that would be the “largest” downside risks to economic growth.
The 11-week-long platinum strike over wages‚ which has shut mines in the Rustenburg area‚ is the worst strike in South Africa’s democratic history. Economists said the revisions were worrying. “The revisions imply that ... we urgently need to address our structural problems that stifle the economy‚” said Renaissance Capital economist Thabi Leoka.
Rand Merchant Bank economist Carmen Nel said the IMF’s view that downside risks to its economic growth forecast existed was important‚ “particularly if external conditions force the Reserve Bank to tighten policy faster or by more‚ which does not seem to be anyone’s base case”. The Bank surprised the market in January when it hiked the repo rate by 50 basis points to 5.5%. At its meeting last month‚ when it held rates steady‚ governor Gill Marcus warned that more hikes were likely.
Emerging-market currencies could come under increased pressure once interest rates start rising in the US – which markets expect could happen in the second half of next year.
“South Africa ... should prepare to weather further tightening of global financing conditions by preserving their budget flexibility and‚ where vulnerabilities are of particular importance‚ by tightening policies‚” the report said.
Barclays Africa senior economist Peter Worthington said that although the IMF’s statement suggested it was arguing for a tightening of fiscal policy‚ this was unlikely to happen before next year’s budget in February. — BDLive
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