Most South Africans have accepted that the country is on a low-growth trajectory, with few opportunities for a significant boost in the performance of the economy in the coming three years. However, this view has been forcefully reinforced by two new reports by the World Bank and the International Monetary Fund (IMF).
The IMF has again lowered its growth outlook for South Africa for 2015, projecting in its October World Economic Outlook (WEO) that the economy will expand by only 1.4% this year and 1.3% in 2016. The forecasts represent a 0.6 and a 0.8 percentage point downgrade respectively, compared with the 2% and 2.1% projections published for 2015 and 2016 respectively in the July WEO Update (see report inside).
The World Bank report also lowers the 2015 growth outlook for South Africa, and confirms a broad-based deceleration of growth across sub-Saharan Africa as a whole. The bank now expects South Africa to grow by only 1.5% in 2015, a material write-down from its forecast of 2% released in August.
It has also lowered its forecast for 2016 to 1.7%, from 2% previously, while it is expecting the economy to expand only modestly by 2% in 2017, having previously forecast 2.4%.
Lead economist for South Africa Catriona Purfield says the revisions are underpinned by a substantial weakening in the price of commodities, such as platinum and iron-ore, as well as an expectation that the country’s electricity shortages will weigh on output.
In addition, consumer demand is expected to remain muted, with the anticipated benefits for households, as a result of the fall in the oil price, having been entirely offset by the decline in the rand.
Purfield warns that the outlook for employment growth and poverty reduction is also bleak in light of the weak growth performance. Under its recently redefined extreme poverty threshold of $1.90/day, the bank says 14%, or seven-million, of South Africans will be living in extreme poverty.
Meanwhile, the bank expects the sub-Saharan Africa region to grow by 3.7% in 2015, down the from the 4.6% recorded in 2014 and well below the average growth rates of better than 5%, which were recorded between 2004 and 2008. The 2015 performance will also be the region’s slowest rate of growth since 2009.
The biannual Africa’s Pulse publication, which was communicated via videolink from Washington DC earlier this month, shows that the bank expects sub-Saharan Africa’s growth to recover to 4.4% in 2016 and 4.8% in 2017.
However, author and acting chief economist Punam Chuhan-Pole warns that the region will not experience, in the near term, the favourable economic tailwinds that supported Africa’s strong pre- economic-crisis expansion.
Chuhan-Pole stresses that, while the ‘Africa Rising’ narrative remains strong, the fall in commodity prices, the slowdown in Chinese growth and the expectation of rising interest rates will pose a challenge for African economies.
Nevertheless, the bank’s 2016 and 2017 forecasts are premised on some recovery in commodity prices, as well as a rise in infrastructure spending as governments ease back on fiscal consolidation.