IMF expects more growth for South Africa in 2023 – but not in 2024

The International Monetary Fund (IMF) has increased its projection for South Africa’s GDP growth in 2023 by 0.2 percentage points – but lowered its 2024 projection by 0.1 percentage points.

In April, the IMF said it expected South Africa’s real GDP growth to decelerate to 0.1% in 2023, mainly due to load-shedding.

The IMF determined that South Africa’s near-term growth outlook has deteriorated.

It expects weak growth due to “a significant increase in the intensity of power cuts, as well as the weaker commodity prices and external environment”.

However, the IMF said it expected growth to rebound in the medium term, although only about 1.5% per year, with income per capita likely stagnating.

“This is because of long-standing structural impediments, such as product and labour market rigidities and human capital constraints, offsetting expected improvements in energy supply, higher private spending on energy-related infrastructure, and a more supportive external environment.”

However, in a recent update to its World Economic Outlook, the IMF upped its projection for South Africa’s growth in 2023 to 0.3%.

This is still a significant decline from the 1.9% growth seen in 2022, which the IMF again attributed to the country’s power shortages.

However, it said the revised forecast was due to “resilience in services activity in the first quarter”.

This is in line with global trends, as the IMF said global economic activity was resilient in the first quarter of 2023, with that resilience driven mainly by the services sector. 

“The post-pandemic rotation of consumption back toward services is approaching completion in advanced economies, and it accelerated in a number of emerging market and developing economies in the first quarter,” it said. 

“However, as mobility returns to pre-pandemic levels, the scope for further acceleration appears more limited.”

In April’s Economic Outlook, the IMF projected 1.8% growth for South Africa in 2024. This has since been revised downward to 1.7%. 

This is in line with the IMF’s overall projections for emerging markets and developing economies, which saw a 0.1 percentage point increase in its 2023 growth projections and a 0.1 percentage point decrease in its 2024 projection.

The IMF also cited inflation as an ongoing concern. It said the rise in central bank policy rates to fight inflation continues to weigh on economic activity worldwide. 

Global headline inflation is expected to fall from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024. Core inflation is projected to decline gradually, and the IMF’s forecasts for inflation in 2024 have been revised upward.

“In most economies, the priority remains achieving sustained disinflation while ensuring financial stability,” the IMF said.

“Therefore, central banks should remain focused on restoring price stability and strengthening financial supervision and risk monitoring.”

“Should market strains materialize, countries should provide liquidity promptly while mitigating the possibility of moral hazard. They should also build fiscal buffers, with the composition of fiscal adjustment ensuring targeted support for the most vulnerable.”

The IMF said improvements to the economy’s supply side would facilitate fiscal consolidation and a smoother inflation decline toward target levels.