The International Monetary Fund (IMF) has cut South Africa’s growth outlook to 1,4% in 2014 and 2,3% for 2015 in its October report.
This is down from the July set of forecasts (for 1,7% and 2,7% respectively) and below the most recent forecasts of the South African Reserve Bank (SARB). With most of the year behind us, there is not much hope for improving on 2013’s 1,9% growth rate, according to the IMF.
The pertinent question is whether there will be a rebound next year. A repeat of the damaging five-month platinum strike is unlikely, but the other conditions that led to disappointing growth in 2014 are set to remain in place next year: tighter monetary policy, poor consumer and business confidence, lower commodity prices, and relatively high inflation.
Fiscal policy is also set to get tighter as the pressure grows on government to close the budget deficit. Government is running behind its targets for the current fiscal year, making the targets for the following years even more ambitious, and tax hikes a real possibility. The IMF’s improved outlook for 2015 compared to 2014 is largely due to an improvement in exports.
South Africa’s growth profile appears to be closer to a mature developed economy than a fast-growing (relatively) emerging market. However, the country needs emerging market rates of growth to deal with emerging market levels of poverty. Growth rates in the rest of Africa are expected to remain robust, and South African companies continue to expand into the rest of the continent out of their slow-growing home market.
South Africa mirrors disappointing global growth, set to average 3,3% in 2014 and rising to 3,8% in 2015.
Emerging markets are still expected to provide the bulk of global economic growth, but while they should still grow faster than developed economies, they are growing at lower rates than in the past, and also at lower rates than what was generally expected by investors.