World Bank shock for SA

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BR Eskom 72574 Bloomberg The impact on growth of a deficient electricity supply was cited in the bank's report on its prediction for South Africa. Photo: Bloomberg

Johannesburg - The World Bank has revised downward the 2014 growth outlook for South Africa, adding more woes to the economy.

The multinational lender now forecasts a 2 percent growth of the economy this year, 3 percent next year, and 3.5 percent in 2016. This is down from the projection of 2.7 percent for 2014 it made in April.

“Tight monetary policy combined with labour strikes and deficient electricity supply will keep growth subdued in South Africa,” the World Bank said as tomorrow’s deadline looms for reviews by global rating agencies Standard & Poor’s and Fitch.

The downward revision by the World Bank comes a few days after the International Monetary Fund representative in South Africa, Nasha Mavee, said the institution might cut South Africa’s growth forecast to about 2 percent or less from the 2.3 percent it had projected in April.

Dave Mohr, the chief investment strategist at Old Mutual Wealth, agreed with the World Bank’s downward revision.

He said: “I think they are even more optimistic. The chances are that it is even below 2 percent in view of the dire state of the economy. But I think we should be able to avoid the recession that everyone is talking about.”

The World Bank says sub-Saharan Africa experienced robust economic growth last year and is set to continue to expand against the backdrop of the global recovery but faces significant headwinds. Gross domestic product (GDP) growth in the region strengthened to 4.7 percent last year after rising 3.7 percent in 2012.

It says: “In South Africa, the region’s second-largest economy, growth slowed notably owing to structural bottlenecks, tense labour relations, and low consumer and investor confidence. Excluding South Africa, average GDP growth for the rest of the region in 2013 was 6 percent, second only to developing East Asia and Pacific at 7.2 percent.”

Isaac Matshego, an economist at Nedbank, said that the downward revision by the World Bank was not a surprise. His bank had already revised growth outlook down to 2 percent and could downgrade it further on the platinum strike and other economic indicators.

The report says two bouts of market volatility in mid-2013 and early 2014 highlighted the need for further efforts in sub-Saharan Africa to contain fiscal and external imbalances.

“In May 2013, following the Federal Reserve’s announcement of the tapering of asset purchases, numerous low-income countries in the region experienced currency depreciation and some frontier countries with significant foreign investment in local securities markets sustained capital ouflows.”

In the second bout of capital market volatility at the beginning of 2014, says the World Bank, the currencies of middle-income countries with higher current account deficits and external financing needs came under more pressure, indicating that markets were already differentiating on the basis of political risks [South Africa, Zambia], macro-economic imbalances [Ghana], and the pace of reforms [South Africa]. - Business Report

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