Economic growth in SA expected to remain weak: IMF

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The International Monetary Fund (IMF) says economic growth in South Africa is expected to remain weak – held back mainly by the electricity crisis.

The IMF has marginally revised its growth forecast on South Africa upwards to 0.3% this year.

It says the slight improvement is due to the resilience in services activity in the first quarter.

Many economists say South Africa needs growth of at least 5% to begin to address the massive challenges of poverty and inequality in the country.

Chief economist at the IMF, Pierre-Olivier Gourinchas has also addressed the effect of Russia’s scrapping of the Black Sea Grain deal.

“It’s very clear that the Black Sea Grain initiative was very instrumental in making sure that there would be ample grain supply to the world in the last year, and the estimates are about 33 million tons of grains that was shipped from Ukraine to the rest of the world and it helped keep price pressures on food and grain price lower. Now that this grain deal has been suspended, we can expect it to work in reverse. It’s likely to put upward pressure on food prices and we have some estimates that about how much of the supplies is going to be withdrawn. We are thinking somewhere in the range of between 10 and 15 percent increases in the price of grains is a reasonable estimate.”

The IMF says the high interest rates have helped bring down inflation.

It says if monetary policy had not been tightening the way central banks had raised rates in the past year, inflation would not be where it is now.

In South Africa, the Reserve Bank hiked rates by a cumulative 475 basis points in the past 2 years, seeing inflation easing from the peak of 7.8% in July of last year, to within the central bank’s target at 5.4% this June.