The International Monetary Fund (IMF) has slashed South Africa’s growth forecast for 2023 by more than half, mainly due to the ongoing energy crisis while other sub-Saharan economies are expected to experience moderate growth.
In its World Economic Outlook 2023 released yesterday, the IMF showed that growth was projected to remain moderate at 3.8% in 2023 in sub-Saharan Africa amid a prolonged fallout from the Covid-19 pandemic.
This was a modest upwards revision since October’s projection, before picking up to 4.1% in 2024.
“The small upwards revision for 2023 (0.1 percentage point) reflects Nigeria’s rising growth in 2023 due to measures to address insecurity issues in the oil sector,” it said.
“In South Africa, by contrast, after a Covid-19 reopening rebound in 2022, projected growth more than halves in 2023 to 1.2%, reflecting weaker external demand, power shortages and structural constraints.”
The IMF’s gross domestic product (GDP) growth projection is grossly optimistic compared to the forecast given by the South African Reserve Bank (Sarb) last week.
The Sarb now forecasts GDP growth of only 0.3% for 2023 as a result of extensive load shedding and other logistical constraints.
Given the scale of load shedding, the Sarb estimates that it deducts as much as 2 percentage points from growth in 2023, compared to the previous estimate of 0.6 percentage points.
Investec chief economist Annabel Bishop yesterday said South Africa’s economic outlook had dimmed as the supply of electricity worsened, with permanent load shedding recently announced by the state utility for the next two years and potentially longer.
Bishop said the IMF had not accounted for the higher stages of load shedding recently announced by Eskom for this year, and next, in its GDP forecast.
She said for South Africa’s 2023 growth outcome, much would however depend on the supply of diesel Eskom can access, along with the speed of new energy build, as well as the full removal of impeding state regulations to both new build and new supply.
“Yesterday, we highlighted that SA’s growing electricity crisis implies a substantially weaker 2023 outcome for the economy, as we have increasingly noted this year so far, well below 1.1% year-on-year, and potentially close to 0.6% year-on-year,” Bishop said.
“If SA averages Stage 5 load shedding this year, growth would drop from our end December/early January forecast of 1.1% to 0.4% for 2023, with the Sarb revising its forecast late last week to 0.3% for 2023.”
Meanwhile, the IMF slightly increased its 2022 and 2023 global growth forecasts, saying that the outlook was less gloomy than its October forecast, and could represent a turning point, with growth bottoming out and inflation declining in spite of the fight against inflation and Russia’s war in Ukraine weighing on activity.
The IMF said global growth would slow from 3.4% in 2022 to 2.9% in 2023 then rebound to 3.1% in 2024.
IMF chief economist Pierre-Olivier Gourinchas said China and India would be major drivers of growth, as China’s GDP growth expected to exceed the widely touted 5% growth target for this year.
Gourinchas said China’s sudden reopening paved the way for a rapid rebound in activity, while global financial conditions have improved as inflation pressures started to abate.
He said this, and a weakening of the dollar from its November high provided some modest relief to emerging and developing countries.
“The risks to the outlook remain tilted to the downside, even if adverse risks have moderated since October, and some positive factors gained in relevance,” Gourinchas said.
“This time around, the global economic outlook hasn’t worsened. That’s good news, but not enough. The road back to a full recovery with sustainable growth, stable prices, and progress for all is only starting.”
However, Oxford Economics director of global macro research Ben May said the IMF’s half-full-glass outlook was too rose-tinted.
“There are several reasons why we think that the IMF is too sanguine about global growth prospects. Although the Fund rightfully acknowledges that at the end of last year the economic data was more resilient than widely anticipated, we think that this may be partly timing,” May said.
“Rather than economies simply shrugging off the slew of shocks of the past year or so, we think these knocks are taking time to seep through to real activity than we had envisaged previously.”