The International Monetary Fund (IMF) has given South Africa’s some reprieve, forecasting that the country’s economic growth would not decline as previously thought in 2023 as adverse risks to global growth have receded since April.
In its World Economic Outlook (WEO) yesterday, the IMF said though the ongoing energy crisis would drag economic growth lower this year, avoiding a technical recession in the first quarter of 2023 had given the economy some hope.
South Africa’s power utility Eskom has resumed implementing heightened levels of power cuts during peak hours as the current electricity generation struggles to meet rising demand after lower stages of load shedding in June.
“In South Africa, growth is expected to decline to 0.3% in 2023, with the decline reflecting power shortages, although the forecast has been revised upward by 0.2 percentage point since the April 2023 WEO, on account of resilience in services activity in the first quarter,” the IMF said.
For 2024, the IMF said gross domestic product (GDP) would rebound to 1.7%, slightly lower than the 1.8% forecast in April.
The IMF’s growth forecast for 2023 is in line with the SA Reserve Bank (SARB) which revised its GDP forecast from 0.3% to 0.4% last week.
However, the SARB is not as optimistic as the IMF about next year as its GDP forecast remained unchanged at 1.0% and 1.1% for 2024 and 2025, respectively.
The SARB has said that energy and logistical constraints remained binding on the growth outlook, limiting economic activity and increasing costs.
Intensified power cuts in South Africa were the main reason why Fitch Ratings slashed the country’s growth forecast for 2023 to zero, from the 0.2% it forecast in March, when it maintained South Africa’s sovereign debt below investment grade two weeks ago.
Fitch said the 2023 GDP would remain stagnant as severe power shortages in recent months were likely to weigh heavily on growth, and the economy would experience a modest recovery to 0.9% growth in 2024 and 1.3% in 2025.
Meanwhile, the IMF raised its 2023 global growth forecast yesterday, saying the world economy was expected to expand by 3% in 2023, up from the April assessment's 2.8% growth, and the 2024 projection was unchanged at 3%.
However, it still remained weak by historical standards due to the impact of central bank policy rate increases aimed at combating elevated inflation.
IMF chief economist Pierre-Olivier Gourinchas said the global economy continued to gradually recover from the pandemic and Russia’s invasion of Ukraine, yet many challenges still clouded the horizon and it was too early to celebrate.
“Under our baseline forecast growth will slow from last year’s 3.5% to 3% this year and next, a 0.2 percentage points upgrade for 2023 from our April projections,” Gourinchas said.
“Inflation is coming down, but the pace of disinflation is slowing. Global inflation is projected to decline from 8.7% last year to 6.8% this year, a 0.2 percentage point downward revision, and 5.2% in 2024.”
Gourinchas said the slowdown was concentrated in advanced economies, where growth will fall from 2.7% in 2022 to 1.5 percent this year and remain subdued at 1.4% next year.
In sub-Saharan Africa, growth is projected to decline to 3.5% in 2023 before picking up to 4.1% in 2024.
This is completely divergent from 1.6% followed by a slight improvement at 2.7% in 2024 forecast by the African Development Bank on Monday.
In terms of individual economies, the US economy is predicted to grow by 1.8% this year and 1% in 2024.
In the Euro Area, GDP growth is expected to slow to 0.9% in 2023 before picking up to 1.5% in 2024 as the region is still reeling from last year’s sharp spike in gas prices caused by the war.
The UK is likely to experience growth of just 0.4% in 2023 and 1% in the following year. As for China and Japan, they are forecast to grow by 5.2% and 1.4%, respectively, in 2023, and by 4.5% and 1% in 2024.