Maurice Obstfeld, chief economist at the IMF, speaks at a world economic outlook news conference during the spring meetings of the IMF and World Bank in Washington, DC, yesterday. The emergence of protectionist forces could undermine a modest brightening of the global growth outlook and is putting severe strain on the post-World War 2 economic order, the IMF said. Photo: Bloomberg
Cape Town - The International Monetary Fund (IMF) has predicted that South Africa’s economy would stage a modest recovery.

The IMF said in its latest outlook for 2017 released on Tuesday that South Africa’s gross domestic product (GDP) growth would be 0.8 percent and 1.6 percent next year as commodity prices rebound, drought conditions eased and electricity capacity expands.

The forecast contrasts with the SA Reserve Bank GDP forecast in March of 1.2 percent this year and 1.7 percent next year.

In sub-Saharan Africa, the IMF said the region would also experience a modest recovery.

“Growth is projected to rise to 2.6 percent in 2017 and 3.5 percent in 2018, largely driven by specific factors in the largest economies, which faced challenging macroeconomic conditions in 2016,” it said.

But the IMF warned that the outlook for sub-Saharan Africa remained subdued and said many commodity exporters needed to adjust fully to structurally lower commodity revenues because commodity prices, despite the recent rebound, remained low.

“Many of the largest non-resource-intensive countries will find it increasingly hard to sustain growth through higher public capital spending, as they have done in the past, in the face of rising public debt and a slowing credit cycle,” it said.

The IMF said a resilient China, rising commodity prices and sturdy financial markets offered a sunnier outlook for the global economy which could dispel the gloom that had lingered since the Great Recession ended.

Slight upgrade

It predicted that the world economy would grow 3.5 percent this year, up from 3.1 percent last year. The outlook is a slight upgrade from the 3.4 percent global growth it had forecast in January. The IMF said it expected the US economy to grow 2.3 percent, up from 1.6 percent in 2016; the 19-country eurozone to expand 1.7 percent, the same as last year; Japan to grow 1.2 percent, up from 1 percent; and China to expand 6.6 percent, down from 6.7 percent in 2016.

The outlook comes in advance of spring meetings in Washington this week of the IMF, the World Bank and the Group of 20 major economies against the backdrop of a gradually strengthening international picture, especially in many emerging economies, despite resistance to free trade and political unrest in some countries.

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For years after the 2008 financial crisis and the Great Recession ended, the global economy remained trapped in what IMF managing director Christine Lagarde termed “the New Mediocre”. Banks were weak and reluctant to lend, and deeply indebted governments made growth-killing budget cuts.

The once super-charged Chinese economy began a long slowdown, driving down global commodity prices and hurting countries from Australia to Zambia that fed raw materials to the world’s second-biggest economy. Plummeting oil prices forced energy companies to slash production.

Now, Lagarde and others say, the outlook was brightening as China’s economy had steadied, thanks to government spending and an easy-money credit boom.

On Monday, Beijing said its economy grew at a 6.9 percent annual pace from January to March, the fastest in more than a year. Oil prices have surged nearly 40 percent in the past year, partly because oil-producing countries agreed to curb production.

Financial markets have marched upward. Investors expect the Chinese government to continue supporting economic growth. They also expect President Donald Trump to deliver tax cuts and infrastructure spending that could help boost US economic growth.

The IMF does warn of downside risks to its optimistic forecast, including “the threat of deepening geopolitical tensions”, the possibility rising US interest rates will squeeze economic growth and rattle financial markets and the threat that protectionist measures will damage global trade.

Wealthy economies also face deeper problems, in particular chronically weak growth in productivity - the output produced per hour of work - and ageing workforces.

BUSINESS REPORT