IMF makes positive about-turn on SA growth outlook after January slash | Fin24
 
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IMF makes positive about-turn on SA growth outlook after January slash

Apr 17 2018 15:01
Tehillah Niselow

 Johannesburg - The International Monetary Fund (IMF) is upbeat about South Africa's Gross Domestic Product (GDP) growth in 2018, raising its forecast to 1.5% after cutting its prediction to 0.9% in January.

The international lender released its World Economic Outlook report in Washington DC on Tuesday, ahead of the IMF/World Bank Group Spring Meetings.

After experiencing 1.3% economic growth in 2017, amid a difficult economic climate, the IMF pencilled in 1.5% growth in 2018 and 1.7% in 2019. It slashed its forecast in January citing rising political uncertainty affecting investment and business confidence.

Three months later, the World Economic Outlook expects business confidence to "gradually firm up" following political changes but warns that  growth prospects remain weighed down by "structural bottlenecks" and the medium-term outlook is subdued, with growth expected to stabilise at 1.8% over 2020–23.

This revision in the forecast is still far below the envisioned 5% economic growth rate by the National Development Plan (NDP), to lower unemployment to 14% by 2020. The jobless figure currently stands at 26.7%.

The IMF advised SA policymakers to reduce policy uncertainty in order to attract private investment, suggesting “reducing barriers to entry in key sectors, including transportation and telecommunications; and improving the efficiency of government spending”.

The IMF expressed mixed views about the National Minimum Wage which was scheduled to be implemented on May 1 but has since been pushed back.

“The proposal to introduce a national minimum wage has the potential to hurt firms’ competitiveness and employment prospects in the formal sector, but it could improve working conditions and reduce poverty.”

In order for living standards to improve in SA, where over half of the population live below the poverty line, broad-based efforts should be made to improve the quality of education, according to the IMF.

The World Bank also raised SA’s GDP growth forecast for 2018 earlier in March, to 1.4%. Treasury predicted 1.5% in the February budget speech but Finance Minister Nhlanhla Nene says this figure is likely to rise with improved confidence in the economy.

Global risks tilted toward downside

The IMF predicts projected that GDP growth in Sub-Saharan Africa will increase gradually during 2018–19 to 3.4% and 3.7%, respectively, as commodity prices rise.

The international lender remains optimistic about global growth prospects, forecasting a 3.9%  increase in 2018, from 3.8% in 2017 but warned that the momentum is likely to be temporary in developed economies.

"Once the cyclical upswing and US fiscal stimulus have run their course, prospects for advanced economies remain subdued, given their slow potential growth."

However the prospects for emerging markets remain more positive in the medium-term and will remain close to 2018 / 2019 levels due to the rise in commodity prices and an increase in India’s growth, offset by the slowdown in China.  

The risks internationally, according to the World Economic Outlook are tilted towards the downside and concerns include the vulnerable financial system, possible inward shift in trade policies, geopolitical tensions and climate shocks. 

The IMF urged countries to take advantage of the rise in economic growth levels in the near-term to enact policies and reforms which will strengthen "the potential for higher and more inclusive growth" and to build buffers ahead of the next downturn, including improving financial systems and increasing international cooperation. 

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