JOHANNESBURG - South Africa’s economic fortunes have taken a turn for the worse with the International Monetary Fund (IMF) yesterday slashing the country’s growth forecast for 2020 to 0.8percent from 1.1percent it projected in October.
In its World Economic Outlook (WEO) released yesterday on the eve of the World Economic Forum that starts in Davos, Switzerland, today, the IMF said the country was now expected to grow a mere 1percent in 2021.
It said that in 2019, the economy slowed to 0.4percent, in line with what the SA Reserve Bank said last week.
The IMF said South Africa would drag down sub-Saharan Africa, even though the region’s economy was expected to strengthen this year.
It said growth in the region would strengthen to 3.5percent in 2020/21, from 3.3percent in 2019. “This reflects downward revisions for South Africa, where structural constraints and deteriorating public finances are holding back business confidence and private investment,” the IMF said.
The IMF’s chief economist, Gita Gopinath, said South Africa’s slow pace of structural reforms had weighed on growth.
INTERNATIONAL Monetary Fund chief economist Gita Gopinath. Supplied
“These growth rates were lower than the population growth rate in South Africa, in terms of per capita, so these are numbers we would hope are much better, the growth would be much higher than this,” Gopinath said.
“In the case of South Africa, the problem is still at the level of policy uncertainty tied to the slow pace of structural reforms that has been weighing on growth. And because now there is limited fiscal space, public spending is now weaker than it could have been, and these factors are having an impact.”
South Africa’s real gross domestic product growth projections for 2019 have been lowered further in recent months, and all are below the 0.8percent achieved in 2018.
The IMF’s deputy director for research department, Gian Maria Milesi-Ferretti, flagged Eskom’s insecure energy supply as one of the main factors in the country’s low economic growth. “One more obstacle to growth is supply bottlenecks. I think the most obvious one is the frequent power outages. Those take a really heavy toll on aggregate supply,” Milesi-Ferretti said.
“You have both an impact on real activity and you have the financial woes of Eskom weighing on the budget, and hence curtailing room for other productive public spending.
“It’s essential to get (the Department of) Public Enterprises reformed, and to be effective and improve the functioning of key (SOEs) like Eskom. That has been one clear factor at play during 2019.”
The IMF said there were tentative signs of stabilisation in global growth, though it remained slow.
It said global growth would rise from about 2.9percent in 2019 to 3.3percent in 2020 and to 3.4percent in 2021 - a downward revision of a 0.1percentage point for 2019 and 2020 and 0.2percentage points for 2021 compared with its October WEO.
The IMF said trade policy uncertainty, geopolitical tensions and idiosyncratic stress in key emerging market economies continued to weigh on global economic activity - particularly manufacturing and trade - in the second half of 2019.
IMF managing director Kristalina Georgieva said the fund had “slightly” downgraded its global economic growth projections for 2020 and 2021. “The reality is global growth remains sluggish. A co-ordinated fiscal response can boost growth,” Georgieva said.