Johannesburg - The World Bank has cut its forecasts for South Africa’s growth prospects to 1.5 percent this year and is more pessimistic than the SA Reserve Bank (SARB) for the growth in the years to come.
The World Bank, which in August had pegged the growth rate at 2 percent for 2015 and 2.4 percent up to 2017, has since revised it to 1.5 percent for 2015, 1.7 percent for 2016 and 2 percent the year after.
The slump in commodity prices, weak consumption, high unemployment rate and inefficient electricity supply have given the World Bank reason to be pessimistic about the country’s growth over the next three years.
The SARB’s forecast for growth has been revised down by half a percentage point in each year of the forecast period, to 1.5 percent in 2015 and 1.6 percent and 2.1 percent in the subsequent two years.
Its estimate of potential output for 2015 has also been revised down to 1.8 percent.
Speaking at the World Bank’s bi-annual economic outlook for Africa, economists said they did not see South Africa returning to the pre-2008 levels because that period had a host of favourable factors including strong commodity prices that were unlikely to be repeated.
“The increase in US rates are adding volatility to financial markets, growth in China was rapid then now it has slowed down and has moved away from being export-led, conditions are less favourable going forward,” said Cesar Calderon, the lead economist for World Bank Africa region.
According to African Pulse, the bi-annual publication of the World Bank, ongoing power and infrastructure bottlenecks compounded by difficult labour relations weighed heavily on growth, although the drought also contributed to the fall in output in the second quarter.
It said despite rising demand, electricity supply had remained broadly constant and power cuts were pervasive.
“In South Africa the recovery is likely to be muted as the weak outlook for commodity prices, high rates of unemployment, ongoing power and infrastructure constraints, difficult labour relations and policy uncertainty weigh on activity,” it said.
It said growth in unit labour cost had continued to outstrip growth in productivity and prolonged strikes had set back mining production.
“Growth is expected to decelerate in sub-Saharan Africa to 3.7 percent in 2015, the lowest since 2009 because of low commodity prices and infrastructure constraints. This is especially the case in the region’s largest two economies, Nigeria and South Africa,” it said.
World Bank lead economist in South Africa Catriona Mary Purfield said the slowdown in commodity prices had been too sharp, citing the iron ore prices, which had fallen by about 25 percent.
She said prospects for growth hinged a lot on Eskom meeting its own targets for power supply and that the unemployment rate was unlikely to improve given the prevailing conditions in manufacturing and mining which might see more jobs being lost.
According to African Pulse, weaker terms of trade have worsened the external imbalances of commodity exporters and current account deficits remain large in some sub-Saharan countries along with the deterioration of fiscal positions.
“Rising wage bills and lower revenues especially amongst oil producers have led to widening fiscal deficits, in some countries large infrastructure expenditures are driving the deterioration in fiscal balances.