Dark clouds gather for South Africa as IMF cuts growth outlook

 ·16 Apr 2024

The International Monetary Fund (IMF) has published its 2024 World Economic Outlook, taking its GDP growth projections for South Africa this year even lower to just 0.9%.

The year started out with a bleak outlook for South Africa when the IMF slashed its growth outlook for the county to a meagre 1% in January, down from 1.8% expected back in October 2023 at the time of its last assessment.

The January update was just a stop-gap between the IMF’s official reports, with the April outlook now setting the tone for the rest of the year.

The fund has now cut South Africa’s growth outlook further, taking off another 0.1 percentage points to 0.9% for the year.

Projections for 2025 have also been reduced by 0.1 percentage points to 1.2%, with projections through to 2029 pointing to only 1.4% growth at the close of the decade.

What’s notable is that South Africa’s growth projections have now effectively halved from the October outlook – and the country’s GDP outlook is the second lowest in Sub-Saharan Africa, with only Equatorial Guinea coming in lower (0.5%).

While the report does not go into detail about the reasoning behind the cut, South Africa has been suffering from multiple crises around power and water supply and logistics.

The power supply issues have improved somewhat—load shedding is currently suspended for an extended period—but they are far from over. Various companies (especially mining) are cutting back output forecasts due to the logistics nightmare caused by Transnet and its failing infrastructure.

The government has taken some measures to address these problems, looping in the private sector to assist, but there are no quick fixes or short-term solutions to cover the decades of mismanagement and neglect.

Added into the mix are political uncertainties arising from the 2024 elections, where the outcome could see many policies, plans, and strategies shift.

According to the IMF, in addition to low growth, South Africa will continue to battle inflation and high unemployment this year. The group projects CPI to average 4.9% for the year—higher than initial projections of 4.5% and also higher than local economists project at 4.7%.

The group only sees South African inflation averaging the South African Reserve Bank’s target of 4.5% in 2025. This aligns with the growing narrative that inflation is unlikely to settle to suitable levels for interest rate cuts any time soon.

According to the outlook, unemployment is expected to deteriorate, rising to 33.5% in 2024 and 33.9% in 2025.

Versus the world

While the outlook for South Africa shows continued slippage, the global economy is expected to fare much better.

According to IMF economic councillor Pierre-Olivier Gourinchas, despite gloomy predictions, the global economy remains remarkably resilient, with steady growth and inflation slowing almost as quickly as it rose.

“The journey has been eventful, starting with supply-chain disruptions in the aftermath of the pandemic, an energy and food crisis triggered by Russia’s war on Ukraine, a considerable surge in inflation, followed by a globally synchronized monetary policy tightening,” he said.

Global growth bottomed out at the end of 2022, at 2.3%, shortly after median headline inflation peaked at 9.4%.

The latest projections point to growth in 2024 and 2025 holding steady at 3.2%, he said, with median headline inflation declining from 2.8% at the end of 2024 to 2.4% at the end of 2025.

“Most indicators continue to point to a soft landing,” he said.

The IMF said that risks to the global outlook are now broadly balanced:

“On the downside, new price spikes stemming from geopolitical tensions, including those from the war in Ukraine and the conflict in Gaza and Israel, could, along with persistent core inflation where labour markets are still tight, raise interest rate expectations and reduce asset prices.

“A divergence in disinflation speeds among major economies could also cause currency movements that put financial sectors under pressure,” it said.

High interest rates, meanwhile, could have greater cooling effects than envisaged as fixed-rate mortgages reset and households contend with high debt, causing financial stress.

It advised that, as the global economy approaches a soft landing, the near-term priority for central banks should be to ensure that inflation touches down smoothly, by neither easing policies prematurely nor delaying too long and causing target undershoots.

Read: Perfect storm hitting interest rates in South Africa

Show comments
Subscribe to our daily newsletter