International Monetary Fund managing director, Christine Lagarde. Photo: Thobile Mathonsi/African News Agency (ANA)

JOHANNESBURG – The International Monetary Fund (IMF) forecast South Africa’s economy to grow 1.4 percent this year from 0.8 percent previously, as the lender painted a bleak picture of global growth.

The IMF further expected South Africa’s economy to grow by 1.7 percent next year. The Washington-based lender said the outlook for emerging markets and developing economies reflected the continued headwinds from weaker capital flows following higher US policy rates and exchange rate depreciations. “After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” said IMF managing director Christine Lagarde on the eve of the World Economic Forum in Davos, Switzerland.

IMF put global growth at 3.5 percent this year and 3.6 percent next year, 0.2 and 0.1 percentage points below October’s projections.

Annabel Bishop, the chief economist at Investec, said South Africa was clearly expected to remain an under performer in the region. “For South Africa, the deep decline expected by the IMF in metals prices, in particular, is a negative for growth, as metals are among SA’s key exports, and the perceived late cycle nature of global economic growth risks SA’s mining sector seeing less significant performance,” Bishop said.

“A  slowdown in commodity prices would also negatively impact the rand, which is a commodity currency.”

The SA Reserve Bank (Sarb) last week said the domestic growth outlook remained sluggish. The Sarb now estimates growth in 2018 to have averaged 0.7 percent up from 0.6 percent in November. The Sarb growth forecast for this year is 1.7 percent, down from 1.9 percent; it is unchanged at 2 percent for 2020 and increases to 2.2 percent in 2021.

Capital Economics economist John Ashbourne said the recent fall in oil prices would provide a boost to South Africa’s terms of trade and put downward pressure on inflation.

“While monetary policy will probably tighten a bit, the tightening cycle will soon end. Fiscal policy on the other hand, will loosen ahead of this year’s election. We expect growth of about 1.5 percent this year, up from 0.5 percent in 2018,” Ashbourne said.

The IMF warned that an escalation of trade tension and a worsening of financial conditions were key sources of risk to the outlook. “Higher trade uncertainty will further dampen investment and disrupt global supply chains. A more serious tightening of financial conditions is particularly costly given the high levels of private and public sector debt in countries.”

The lender further said China’s growth slowdown could be faster than expected, particularly if trade tension continued, and that could trigger abrupt sell-offs in financial and commodity markets as was the case in 2015/16. Official figures yesterday showed that China’s economy expanded at 6.6 percent last year – the slowest pace since 1990.

BUSINESS REPORT