The International Monetary Fund (IMF) has again lowered its 2013 gross domestic product (GDP) growth forecast for South Africa, attributing the downward revision to persistent labour tensions, as well as weak investment and confidence levels.

In its biannual World Economic Outlook, the IMF indicated that Africa’s largest economy would expand by a modest 2% in 2013, having forecast an expansion of 2.8% in April – in October 2012, the IMF forecast that South Africa would grow by 3% in 2013.

The organisation, which has 188 member countries, was also less optimistic about the country’s 2014 prospects in its October statement, lowering its projection to 2.9% from an earlier estimate of 3.3%.

Speaking ahead of the release of the report, Finance Minister Pravin Gordhan indicated that South Africa’s economic growth will also fall short of the National Treasury’s own February estimate of 2.7%, but he said it would not fall below 2%. Gordhan would update government’s official growth outlook when he delivers the Medium-Term Budget Policy Statement on October 23.

South Africa’s performance stood in stark contrast to the performance of the rest of sub-Saharan Africa, where growth remained robust and was projected to increase from about 5% in 2013 to 6% in 2014 – this too reflected a slight downward revision from earlier forecasts.

The IMF said South Africa’s growth slowed “in large part” as a result of tense industrial relations, anemic private investment, weaker consumption growth and weakening consumer confidence.

“In South Africa, growth is forecast to improve gradually in 2014 and beyond as global growth improves and infrastructure bottlenecks are alleviated. However, the tighter financing environment, still weak investor and consumer confidence, continued tense industrial relations, policy uncertainty, and elevated household debt would weigh on economic performance.”

In its earlier staff report on South Africa, following Article IV Consultations, the IMF warned that further labour market instability, or a prolonged halt to capital inflows into South Africa could spark a disorderly adjustment of the country’s current account and fiscal deficits.

This theme was unpacked further by the World Bank, which warned that South Africa is at risk from any disorderly increase in interest rates, which could accompany the inevitable tapering of quantitative easing measures.

In its semi-annual Africa Pulse publication the World Bank said South Africa was particularly vulnerable to capital-flow movements, since debt-creating flows finance around 80% of the country’s current account deficit.

“Although recent statements by the [US Federal Reserve] indicate a continuation of its quantitative-easing measures, the inevitability of tapering and the subsequent rise in base interest rates and spreads still remain,” the report stated.

Econometric evidence suggests that developing-country interest-rate spreads rise when base rates increase, with a recent World Bank study suggesting that a 100-basis-point increase in high-income-country base rates is associated with a 110-to-157-basis-point increase in developing-country yields.

South Africa’s growth, the IMF said, would improve gradually in 2014 and beyond as global growth improves and infrastructure bottlenecks are alleviated. “However, the tighter financing environment, still weak investor and consumer confidence, continued tense industrial relations, policy uncertainty, and elevated household debt would weigh on economic performance.”

The World Economic Outlook forecasts that the world economy would expand by 2.9% in 2013 and by 3.6% in 2014, reflecting modest downward revisions from previous growth estimates.

The report stressed that global growth remained weak, but that the underlying dynamics were changing, which was raising new threats. “In a departure from previous developments since the Great Recession, the advanced economies have recently gained some speed, while the emerging market economies have slowed. The emerging market economies, however, continue to account for the bulk of global growth.”

The IMF said China and a number of other emerging markets were coming off cyclical peaks. However, their growth rates would remain much above those of the advanced economies, but below the elevated levels seen in recent years.

China’s slower growth trajectory was expected to affect the medium-term growth outlook for African resource exporting countries, while the recent weakening in commodity prices might also delay mining investment. The Chinese economy was expected to grow by 7.6% in 2013 and 7.3% next year, lower that the 8% and 8.2% forecast for the two years previously.

“The main threats to the outlook [for sub-Saharan Africa] are a global economic downturn or a further deceleration of growth in China or other major emerging markets that could weaken exports through lower commodity prices or reduced inflows of aid and foreign direct investment.”

A sharp or protracted decline in oil and commodity prices would affect commodity exporters, the IMF cautioned, dovetailing with the World Bank acting chief economist for Africa Francisco Ferreira's suggestion that authorities in resources-rich African countries begin preparing for the prospect that commodity prices could weaken.

On a year-to-date basis, metal prices have declined sharply, owing to persisting large stocks, steady increases in supply, and weaker demand from China, which accounts for about 40% of global metal consumption.

The IMF urged African government to pursue macroeconomic policies that focused on rebuilding fiscal “buffers” where these have been depleted, as well as on keeping inflation under control.

But South Africa also needed “decisive progress in implementing structural reforms to strengthen education and the effectiveness of government services, ease infrastructure bottlenecks, and increase product market competition and labour market flexibility”.