The International Monetary Fund (IMF) has again lowered its growth outlook for the South African economy and has listed the country among those large emerging economies whose growth outlook has been downgraded as a result of domestic policy weaknesses, tighter domestic and external financial conditions and/or investment and supply constraints. The other countries grouped with South Africa in the IMF’s latest World Economic Outlook (WEO) are Brazil, Russia and Turkey.
The IMF lowered its 2014 growth outlook for Africa’s second biggest economy – after Nigeria’ gross domestic product (GDP) rebasing – to 2.3%, having previously forecast that the economy would expand by 2.8%. Similarly, the 2015 outlook was lowered to 2.7% from over 3% – South Africa grew by only 1.9% in 2013.
South Africa continued to decelerate, the WEO stated, owing to “tense industrial relations in the mining sector, tight electricity supply, anemic private investment, and weak consumer and investor confidence”.
In its ‘Africa’s Pulse’ publication, which was published a day ahead of the IMF’s report, the World Bank noted that South Africa’s weak growth had also weighed on sub-Saharan Africa’s overall expansion in 2013.
“Excluding South Africa, average output growth for the rest of the region was 6.1%, second only to developing Southeast Asia and Pacific at 7.2% and well above the global GDP growth rate at 2.4%,” Africa’s Pulse stated.
The IMF also noted that Nigerian growth had remained strong, owing to relatively high oil prices and despite security problems in the north and large-scale oil theft in the first half of 2013.
It also indicated that, while South Africa’s growth should rise moderately, driven by improvements in external demand, the risks were to the downside.
The country was particularly exposed to a reversal of portfolio flows should global financial conditions tighten further.
“South Africa and the group of frontier market economies should prepare to weather further tightening of global financing conditions by preserving their budget flexibility and, where vulnerabilities are of particular importance, by tightening policies.”
The IMF also suggests that South Africa should be ready to adjust its financing plans in a scenario of greatly reduced access to external funding, while allowing the rand to respond to changes in capital flows.
South Africa’s weak outlook came against a backdrop of a global recovery that was expected to strengthen.
The IMF said the recovery would be led by advanced economies, with growth in emerging market and developing economies expected to pick up only modestly.
Global growth was projected to strengthen from 3% in 2013 to 3.6% in 2014 and to 3.9% in 2015, while growth in sub-Saharan Africa, which came in at 4.8% last year, was expected to remain strong. Sub-Saharan African GDP was anticipated to expand by 5.4% this year and rise to 5.5% in 2015.
In emerging market and developing economies, growth was projected to pick up gradually from 4.7% in 2013 to about 5% in 2014 and 5.25% in 2015.