IMF raises South Africa’s growth outlook

The International Monetary Fund (IMF) has raised its 2023 growth forecast for South Africa to 0.9% – up from its last forecast in July of 0.3% growth – due to lower-than-anticipated load-shedding. 

This was revealed in the IMF’s World Economic Outlook released today, where the international institution laid out its expectations for global growth in 2023 and 2024. 

The IMF expects South Africa’s economy to grow by 1.8% in 2024. 

However, the local economy will continue to lag behind that of its African and developing peers, which are expected to grow, on average, by 4% and 4.1%, respectively. 

Its latest forecast comes ahead of the presentation of South Africa’s medium-term budget policy statement in November. 

The forecast is bleak, as South Africa faces a widening budget deficit and a number of structural impediments to growth.

The IMF is particularly concerned about the impact of worsening weather shocks, the global slowdown, and domestic supply issues in the electricity sector on the growth prospects of sub-Saharan countries, including South Africa.

It does paint a slightly optimistic picture of the global economy, which market watchers feared earlier in 2023 could go into recession due to the ongoing Russia-Ukraine conflict and the lingering effects of the Covid-19 pandemic. 

However, the IMF remains concerned about China’s real estate crisis and a resurgence of inflation and warns central banks against cutting interest rates too quickly without considering the risks.

The South African Reserve Bank (SARB) also recently increased its forecasted economic growth for South Africa to 0.7% from 0.4%.

This improvement came as the Monetary Policy Committee voted to pause interest rate hikes for a second time as South Africa’s inflation has cooled over recent months. 

Energy and logistical constraints remain binding on the growth outlook, limiting economic activity and increasing the costs of doing business, the Reserve Bank said. 

From a demand perspective, spending by firms, households, public corporations, and general government remains positive on an annual basis. 

Although credit growth to households and corporations has slowed in recent months, it has increased in real terms compared to last year. The forecast for investment for the year is revised up to 7.7% from 4.4%. 

These supply and demand trends enabled an upward revision to the Reserve Bank’s forecast for GDP growth to 0.7%, from the July figure of 0.4%. 

Its GDP growth forecast for 2024 and 2025 remained unchanged from the previous meeting, at 1.0% and 1.1%, respectively.

While households and firms exhibit some resilience, economic growth has been volatile and highly sensitive to new shocks. 

An improvement in logistics and a sustained reduction in load-shedding, or greater energy supply from alternative sources, would significantly increase growth, the SARB said.