IMF revises SA growth downward to 2% for 2013

9th July 2013

By: Idéle Esterhuizen

  

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The International Monetary Fund (IMF) revised South Africa’s forecast growth for this year down to 2% in its latest World Economic Outlook (WEO), marking a fall of 0.8% from the fund’s April forecast.

The projections for the country’s economic growth in 2014 was also revised downward by 0.4% to 2.9%.

The latest WEO was in line with recent forecasts by other industry bodies. Statistics South Africa announced in May that the country's economic growth had, on the back of shrinking manufacturing output, slowed to 0.9% in the first quarter of 2013, from 2.1% in the fourth quarter of 2012 – the weakest level since early 2009.

Similarly, citing subdued external demand, subject to significant downside risks and a domestic investment climate weakened by labour strife, the World Bank lowered its 2013 economic growth forecast for South Africa to 2.5% in its latest South Africa Economic Update, also in May, having projected growth of 3.2% in July 2012.

Further, the latest WEO indicated that growth in sub-Saharan Africa would also be weaker this year, as some of the region’s largest economies, including Nigeria and South Africa, struggled with domestic problems and weaker external demand. Growth in some economies in the Middle East and North Africa also remained weak, owing to challenging political and economic transitions.

The Washington-based fund said a contributing factor to this was that, at 5% in 2013 and about 5.4% in 2014, growth in emerging market and developing economies was expected to evolve at a more moderate pace, about 0.25 percentage points slower than was forecast in the April WEO.

As a result, growth in China was expected to average 7.75% in 2013 and 2014, 0.25 and 0.5 percentage points lower respectively, than the April 2013 forecast.

Forecast growth for the other Brazil, Russia, India, China and South Africa (Brics) economies had also been revised down by 0.75 percentage points. The outlook for many commodity exporters, including those among the Brics, had also deteriorated owing to lower commodity prices.

In total, global growth was projected to recover from slightly above 3% in 2013 to 3.75% in 2014, about 0.25% weaker for both years than the April 2013 projections.

The latest WEO was in line with IMF MD Christine Lagarde’s warning last week that the fund may cut its global growth forecast, owing to the fact that the expansion of emerging market economies was slowing.

The IMF further stated that downside risks still dominated its outlook.

“Although imminent tail risks in advanced economies have diminished, additional measures will be needed to keep them at bay, including timely increases in the US debt ceiling and continued ‘do what it takes’ action by the authorities of the euro area to mitigate and reverse financial fragmentation,” the organisation said.

In contrast, risks of a longer slowdown in growth in emerging market economies had increased, owing to protracted effects of domestic capacity constraints, slowing credit growth and weak external conditions.

POLICIES AND GROWTH

The IMF put forward that weaker growth prospects and new risks raised new challenges to global economic growth and employment, as well as global rebalancing. It urged that all policymakers needed to increase efforts to ensure robust growth.

“Potential adverse side effects should be contained with regulatory and macroprudential policies. Clear communication on the eventual exit from monetary stimulus will help reduce volatility in global financial markets,” it said, adding that further progress in financial sector restructuring was required to recapitalise and restructure global bank balance sheets and improve monetary policy transmission.

The IMF suggested that monetary easing could be the first line of defense against downside risks, as inflation was generally expected to moderate in most economies. However, it pointed out that real policy rates were already low and that capital outflows and price effects from exchange rate depreciation could also constrain further easing.

“With weaker growth prospects and potential legacy problems from a prolonged period of rapid credit growth, the policy framework must be ready to handle possible increases in financial stability risks. While macroeconomic policies can support these efforts, the main instruments should be regulatory oversight and macroprudential policies,” the fund stated.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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