IMF revises South Africa’s economic growth projection down to 1%

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The International Monetary Fund (IMF) has revised its economic growth projection for South Africa this year, lowering it from the previous estimate of 1.8% to 1%.

The IMF attributes this downward revision to persistent logistical constraints and shortages in electricity supply.

The IMF’s World Economic Outlook also forecasts global economic growth to reach 3.1% in 2024. The report notes that, like many other countries heading into elections, South Africa might face spending pressure, potentially undermining fiscal consolidation. Increased spending could delay reforms and lead to higher borrowing costs.

Chief of Research at the IMF, Daniel Leigh, says that resolving the energy and logistics crisis should be a top priority.

He stated, “Our forecast for South Africa starts with what happened in 2023, a very low growth year in the context of power disruptions. 0.6% is our estimation of what growth was in 2023, but then in 2024, we see a gradual increase towards 1%.”

IMF cuts SA’s economic growth forecast

The main reasons cited for the downgrade include additional disruptions in the logistical sector, such as rail and ports, along with ongoing challenges in electricity production.

The IMF report also highlights that inflation is falling faster than expected in most regions due to easing supply-side issues and elevated interest rates.

Chief Economist Pierre-Olivier Gourinchas cautioned central banks against premature easing, emphasising the need to avoid undoing hard-earned credibility and risking a rebound in inflation.

Gourinchas added, “Central banks must now avoid a premature easing that would undo hard-earned credibility and lead to a rebound in inflation. But they must also avoid waiting too long as signs of strains are growing in interest rate-sensitive sectors, such as construction, and loan activity has declined markedly in many countries.”

The global headline inflation is expected to fall to 5.8% in 2024, according to the IMF.

2024 World Economic Outlook Report: