JOHANNESBURG - The International Monetary Fund (IMF) has left its economic forecast for South Africa unchanged, but warned the country’s unemployment rate would rise to an unprecedented level.
The IMF’s World Economic Outlook report released yesterday said the country’s gross domestic product (GDP) would experience an 8 percent contraction this year, while unemployment was forecast to rise to 37 percent.
IMF chief economist Gita Gopinath said South Africa’s economic growth would decline in line with that of global economies, except China, due to the Covid-19 impact.
Gopinath said the global economy would remain in a deep recession this year, with real GDP growth at -4.4 percent, an upward revision of 0.8 percent compared with the June forecast.
She said South Africa, as a coal exporter, was also impacted due to global lockdowns.
“Coal has also experienced significant downward price pressure, although supply disruptions in South Africa and strong demand from Indian industrial buyers supported South African coal prices,” she said.
Gopinath, however, said South Africa’s economy would rebound 3 percent in 2021, 0.5 percent lower than its previous estimate, while employment would moderate to 36.5 percent.
Tomorrow President Cyril Ramaphosa is expected to present the country’s economic recovery plan as government projects that economic activity will contract 7.2 percent this year.
Old Mutual’s Izak Odendaal said the recovery needed cyclical support while debt sustainability required structural reform.
Odendaal said the fact that the recovery plan had been agreed to by a broad range of stakeholders was positive and increased the chances of its proper implementation.
“On the downside, it is unlikely to raise South Africa’s growth potential to that of other fast-growing dynamic emerging markets, mainly because the State will remain a dominant player and the economy will remain over-regulated,” he said.
“However, if implemented, the various elements of the plan could raise South Africa’s growth from near-zero levels to around 2 percent. That in turn would go a long way to ensuring debt sustainability if paired with greater spending discipline.”
The IMF projected that sub-Saharan Africa would contract 3 percent this year before rebounding by 3.1 percent next year.
Gopinath, however, said there was a “significant heterogeneity” within the region, as oil-exporting countries were affected by low oil prices, while others were impacted by civil strife or economic crises.
“You have countries that are commodity exporters who have been negatively impacted by the drop in oil prices. Nigeria is one such case. Then you have countries like South Africa where you’ve had a big hit in activity. There is always a difference in countries that are more diversified they seem to have better growth prospects than others,” she said.
For emerging market and developing economies, growth was forecast at -3.3 percent, 0.2 percentage point weaker than in June, and strengthening to 6percent next year.
“Emerging markets and developing economies have had to deal with this crisis with far fewer resources. For these economies we have to prioritise critical spending for health and support for the poor, and ensure maximum efficiency. But they will also need continued support in the form of international grants, concessional aid and, in several cases, debt relief. Where debt is unsustainable, it should be restructured sooner than later to free up finances to deal with this crisis.”