The International Monetary Fund (IMF) is the latest global finance group to cut South Africa’s GDP grow prospects for 2020, expecting meagre growth of 0.8%.
This was one of the findings in the group’s Global Economic Outlook report for 2020, published ahead of the World Economic Forum being held in Davos this week.
The IMF revised South Africa’s 2020 growth prospects down from 1.1% in its October 2019 report – while the GDP estimates for 2019 were also cut.
The group previously expected GDP growth of 0.7% in 2019, but currently project the final figure to be around 0.4%.
South Africa’s growth in 2019 was massively stunted by power outages through load shedding, which led to a major first quarter decline of 3.2%. While this was effectively reversed in the second quarter (+3.2%), a third quarter decline of 0.6% followed.
Despite a boost to GDP for the fourth quarter expected to balance out the year of declines, analysts, economists and financial groups are not expecting a significant reversal in the country’s 2019 growth numbers, seeing a flat outcome when the data is published.
The revised outlook for South Africa reflects structural constraints and deteriorating public finances, which are holding back business confidence and private investment, the IMF said.
The World Bank was the first key institution to cut its economic growth forecast for South Africa to below 1% for 2020 due to electricity supply concerns.
Earlier in January it said it now expects the South African economy to expand by just 0.9% this year.
Its outlook for Africa’s most-industrialised economy is “markedly weaker” because it sees electricity supply and infrastructure constraints inhibiting domestic growth with weaker global economic conditions weighing on export demand.
The negative outlook for South Africa in 2020 was initiated when load shedding returned much sooner in the year than expected.
While power utility Eskom has since managed to avoid load shedding in the weeks that followed the sudden return in early January, the group has not made any progress in reducing its daily unplanned outages to back below 9,500MW.
Outages remain in the region of 11,000MW to 12,000MW, with media reporting that the group is burning emergency reserves of diesel – shooting past its budget by 50% – to keep the lights on.
In delivering the latest decision on South Africa’s repo rate, the South African Reserve Back also revised the country’s GDP growth prospects downward, though it remains more optimistic than the World Bank and the IMF.
The central bank now expects growth in 2020 to be 1.2%, down from 1.4% previously.
According to the IMF, it projects global growth to increase modestly from 2.9% in 2019 to 3.3% in 2020 and 3.4% in 2021.
“The slight downward revision of 0.1 percent for 2019 and 2020, and 0.2 percent for 2021, is owed largely to downward revisions for India. The projected recovery for global growth remains uncertain.
“It continues to rely on recoveries in stressed and under-performing emerging market economies, as growth in advanced economies stabilises at close to current levels,” it said.
Overall, the risks to the global economy remain on the downside, despite positive news on trade and diminishing concerns of a no-deal Brexit, the group said.
“New trade tensions could emerge between the United States and the European Union, and US-China trade tensions could return. Such events alongside rising geopolitical risks and intensifying social unrest could reverse easy financing conditions, expose financial vulnerabilities, and severely disrupt growth.
“Importantly, even if downside risks appear to be somewhat less salient than in 2019, policy space to respond to them is also more limited. It is therefore essential that policymakers do
no harm and further reduce policy uncertainty, both domestic and international. This will help to revive investment, which remains weak,” it said.