World Bank’s bleak picture of South Africa ‘flirting with recession’

·3 Feb 2016

The World Bank has cut South Africa’s 2016 growth forecast to 0.8%, warning that it is at risk of falling into recession.

According to Bloomberg, the lender warned in a report published on Tuesday, that the economy is “flirting with stagnation if not recession”.

The report noted that as with all emerging markets, South Africa faces challenges from weaker commodity prices, lower Chinese demand and rising US interest rates.

These already difficult headwinds are further compounded by domestic factors including policy uncertainty, infrastructure gaps and drought, according to the report.

It further notes that rising public debt and prospective inflationary pressures have placed fiscal and monetary policy on a tightening foot.

The forecast for real gross domestic product (GDP) growth is at 0.8% in 2016, down from 1.3% 2015 and the lowest rate of growth since 2009. Growth is forecast at 1.1% in 2017.

Overall, South Africa is projected to remain largely below the average growth rate of 4.5% for Sub-Saharan Africa in 2016–2017, the World Bank said.

Against this backdrop, poverty in South Africa is set to rise as incomes fall, placing the National Development Plan (NDP) goals of the eradication of extreme poverty, reduction in joblessness and doubling of incomes by 2030 further out of reach.

“In this prevailing weak economic climate, it is important for South Africa to look to other avenues outside the fiscal space to stimulate faster growth,” said Guang Zhe Chen, World Bank country director for South Africa.

“With this study we offer evidence for one such route, competition policy, and hope this will enhance debate and reinforce the case for the bold policy decisions needed to revive the country’s economy for faster growth, more jobs, and poverty eradication.”