The International Monetary Fund (IMF) has raised South Africa’s growth forecast for 2023, but warned that the ongoing power crisis in the country will be a drag on growth in the sub-Saharan Africa region.
In its World Economic Outlook (WEO), the IMF said yesterday that South Africa’s gross domestic product (GDP) would inch higher to 0.9% in 2023, a 0.6 percentage point upward revision up from 0.3% previously forecast in July.
This IMF growth projection is better than the South African Reserve Bank’s (SARB) forecast of 0.7%, and might give the central bank reason to be bullish at the monetary policy committee final meeting for the year next month.
However, the IMF growth forecast is still a significant 1% lower than the 1.9% GDP growth recorded in 2022.
“In South Africa, growth is expected to decline from 1.9% in 2022 to 0.9% in 2023, with the decline reflecting power shortages, although with a 0.6 percentage point upward revision thanks to the intensity of power shortages in the second quarter of 2023 being lower than expected,” read the WEO report.
For 2024, the IMF said South Africa’s GDP will rebound to 1.8%, significantly higher than the 1.0% forecast by the SARB.
Because South Africa contributes 19.5% in the sub-Saharan African region, the IMF said that the slow economic growth in South Africa would drag GDP growth in the whole region.
The IMF said disruptive power shortages in South Africa picked up significantly in 2022 and had weighed on the country’s growth in 2023.
However, it said outturns for the first half of the year had been better than anticipated, owing to the lower-than-projected impact of power shortages and the ongoing strength of the services sector.
As a result, growth in sub-Saharan Africa in 2023 is expected to fall for the second year in a row to 3.3% from 4.0% last year, before rebounding to 4.0% in 2024.
IMF’s head for World Economic Studies division, Daniel Leigh, said the projected growth in the sub-Saharan African region was below the potential that Africa has.
“In sub-Saharan Africa we have growth, bottoming out in 2023, then coming back up in 2024. Inflation is peaking, but it’s still in double digits for more than 40% of the economies,” Leigh said.
“We see African growth 3.34%, that’s above the global average, but it’s below the potential that Africa has and that it needs to catch up more quickly towards higher income levels.
“The shocks hitting growth are diverse, but there are several external ones coming from the higher fuel, food and fertiliser prices still from the war in Ukraine, the funding squeeze harder to get capital and still very high spreads, therefore, for several economies and exchange rate pressures.”
Looking ahead, the IMF said the relative size of South Africa meant that average regional growth in 2024 would largely reflect South Africa’s coming recovery, which in turn would be driven by that country’s efforts to address pressing issues in the power sector.
But the region’s recovery extends beyond South Africa as growth would improve in around four-fifths of the region’s economies.
Meanwhile, the IMF said global growth would slow from 3.5% in 2022 to 3% this year and 2.9% next year, a 0.1 percentage point downgrade for 2024 from July, well below the historical average.
IMF chief economist Pierre-Olivier Gourinchas said the likelihood of a soft landing for the global economy from the impact of the Covid-19 and the Russia-Ukraine war had increased, but the growth forecast was the lowest in decades.
“The global economy continues to recover from the pandemic, Russia’s invasion of Ukraine and the cost-of-living crisis. The global economy is limping along, not sprinting,” Gourinchas said.
“As a result, projections are increasingly consistent with a soft landing scenario, bringing inflation down without a major downturn in activity, especially in the US, where our forecast increase in unemployment is now modest, from 3.6% to 3.9% by 2025.”
However, Oxford Economics said the IMF’s growth forecast remained higher than the consensus’ and their own forecasts.
Oxford Economics director of global macro research, Ben May, said a key reason for the IMF’s more optimistic view was that it expected the US economy’s resilience to persist and a soft landing to be achieved.
“We are not convinced. We still expect the lagged impact of past monetary policy tightening, more restrictive fiscal policy, and weaker household savings buffers to trigger a modest contraction in activity in the US around the turn of the year,” May said.
“Then, we anticipate the upturn in prospects for the US economy will be mild.”
BUSINESS REPORT