The World Bank expects growth in South Africa to recover to 1.1% in 2018, from 0.8% in 2017, on the back of improving business sentiment, which should support a modest rise in investment.

The January Global Economic Prospects report upgraded the bank’s estimate of South Africa’s 2017 growth performance by 0.2 of a percentage point, owing to a stronger-than-expected second half. The country is forecast to grow by 1.7% in 2019 and 2020.

Nevertheless, the report served to highlight just how poorly the South African economy is performing relative to rest of the world, as well as most other countries in sub-Saharan Africa (SSA).

Global economic growth is forecast to increase to 3.1% this year from 3% in 2017, while growth in the rest of the SSA region is projected to continue to rise to 3.2% in 2018 and to 3.5% in 2019.

In fact, if the slow-growth larger SSA economies of Angola (1.6%), Nigeria (2.5%) and South Africa (1.1%) had been excluded from the 2018 SSA outlook, the regional growth forecast would have come in at 5%.

The report also warns that policy uncertainty in South Africa, as well as the rest of the region, remains a downside risk, which could slow needed structural reforms, hurt confidence and deter investment.

“This risk is elevated in South Africa, where the ruling African National Congress’s leadership election could lead to deep divisions within the party, and in Zimbabwe, where a political transition is unfolding.”

The report also raises a concern that excessive external borrowing, in the absence of forward-looking Budget management, could worsen debt dynamics and hurt growth in many African countries.

“A steeper-than-anticipated tightening of global financing conditions could also lead to a reversal in capital flows to the region.”

The bank notes that government debt in South Africa has increased further, owing to fiscal slippages, and that concerns about the country’s debt outlook prompted Standard & Poor’s to downgrade the country’s local currency debt to a subinvestment grade in 2017.

The report states that 2018 is likely to be the first year since the financial crisis when the global economy will operate at, or near, full capacity.

However, it also describes the stronger growth outlook as a short-term upswing.

“Over the longer term, slowing potential growth – a measure of how fast an economy can expand when labour and capital are fully employed – puts at risk gains in improving living standards and reducing poverty around the world.”

The slowdown in potential growth was the result of years of softening productivity growth, weak investment, and the aging of the global labour force.

“Without efforts to revitalise potential growth, the decline may extend into the next decade, and could slow average global growth by a quarter percentage point and average growth in emerging market and developing economies by half a percentage point over that period.”