The International Monetary Fund (IMF) anticipates that the South African economy will barely grow in 2016, revising its forecast to just 0.7% from its 1.3% estimate published in October, a 0.6 percentage point downward revision.
The fund’s World Economic Outlook Update, which cautions that the pickup in global activity will also be more gradual than forecast in October, especially in emerging and developing economies, also lowered South Africa’s 2015 growth estimate to 1.3% from 1.4% previously. It also cut its outlook for 2017 by 0.3 of a percentage point to 1.8%.
The latest revision forms part of a now established trend of the IMF persistently lowering its growth estimates for South Africa and comes amid a warning that many emerging and developing economies face headwinds.
Of South Africa’s Brics counterparts, only India’s outlook remains unchanged for 2016 at 7.5%. Brazil and Russia are expected to retreat by 3.5% and 1% respectively, while China’s 6.3% growth outlook for 2016 represents a modest 0.1 of percentage point downgrade from the October figure.
“Overall growth in China is evolving broadly as envisaged, but with a faster-than-expected slowdown in imports and exports, in part reflecting weaker investment and manufacturing activity. These developments, together with market concerns about the future performance of the Chinese economy, are having spillovers to other economies through trade channels and weaker commodity prices, as well as through diminishing confidence and increasing volatility in financial markets.”
However, the sub-Saharan Africa (SSA) region is expected to grow by 4% this year, which represents a slight recovery from the growth estimate of 3.5% in 2015. The IMF expects the region to grow by 4.7% in 2017.
Nevertheless, growth across SSA remains below the 5%-plus levels experienced prior to 2015, with lower commodity prices weighing on a number of countries.
The IMF says growth will be lower in the region than it has been over the past decade mainly because of the continued adjustment to lower commodity prices and higher borrowing costs. The region’s largest economies Angola, Nigeria and South Africa, as well as a number of smaller commodity exporters, are particularly affected by these developments.
Commodity markets, the IMF says, pose two-sided risks: further declines in commodity prices would worsen the outlook for already-fragile commodity producers, while, on the upside, the recent decline in oil prices may provide a stronger boost to demand in oil importers than is currently envisaged.
The fund argues that, in general, allowing for exchange rate flexibility will be an important means for cushioning the impact of adverse external shocks in emerging market and developing economies, especially commodity exporters, though the effects of exchange rate depreciations on private and public sector balance sheets and on domestic inflation rates need to be closely monitored.
The South African rand has come under intense pressure over the past few months, having slumped by around 30% since the start of 2015.
Global growth is projected at 3.4% in 2016 and 3.6% in 2017, a 0.2 of a percentage point downgrade on the October estimate.
The IMF estimates that the world economy grew by 3.1% in 2015, with growth in emerging market and developing economies declining last year for the fifth consecutive year, while a modest recovery continued in advanced economies.
The global outlook is still being influenced by three trends: the gradual slowdown and rebalancing of economic activity in China away from investment and manufacturing toward consumption and services; lower prices for energy and other commodities; and a gradual tightening in monetary policy in the US in the context of a resilient recovery of the American economy.
A key downside risk is the prospect of a “sharper-than-expected slowdown along China’s needed transition to more balanced growth, with more international spillovers through trade, commodity prices, and confidence, with attendant effects on global financial markets and currency valuations”.