The International Monetary Fund (IMF) has urged South Africa and the Sub-Saharan Africa region to continue slowly easing interest rates to stimulate economic activity that will drive individual and collective growth.
IMF African department director Abebe Aemro Selassie, who launched the global financier's economic outlook report for Sub-Saharan Africa on Friday, said this would stimulate regional growth, which is projected at 3.6% for 2024.
Briefing reporters at IMF annual meetings in Washington DC, he said the development finance institution would send a team to South Africa in November to conduct a comprehensive assessment of the latest economic data coming out of the country. This would be taken into account in further reports.
Selassie said the IMF was encouraged by recent trends and speedier economic reforms to make the most of an easing global environment of receding inflation.
“Some of the differences [in South Africa’s outlook compared with previous years] are on account of the external environment. Now with the easing cycle that we’ve seen, the revision to interest rates; I think those will also have a material impact, particularly for South Africa on the debt outlook.
“We are hopeful that the direction of policies in South Africa will remain one where the imbalances that were built up over the past couple of years are being addressed. So we’re looking forward to having good discussions in the next month.”
We are hopeful that the direction of policies in South Africa will remain one where the imbalances that were built up over the past couple of years are being addressed. So we’re looking forward to having good discussions in the next month
The IMF projects South Africa’s GDP growth rate to be 1.1% for 2024 and 1.5% for 2025.
The Reserve Bank’s monetary policy review for October forecast GDP growth of 1.2% this year, while President Cyril Ramaphosa’s government-business partnership is aiming to achieve 3% GDP growth by the end of 2025.
The IMF report noted the impact of tight monetary policy on domestic debt markets, saying: “The domestic debt market in many countries is saturated. Needed monetary policy tightening has also led to higher domestic borrowing rates for the private sector, exerting a drag on activity and investment.”
It said: “The median real prime lending rate peaked in December 2023 but remains elevated, at about 5.4% as of August 2024. The resulting tight financing constraints make the needed macroeconomic adjustment more difficult since gradualism becomes less feasible.”
The report said evidence showed countries with stronger fundamentals, including monetary and fiscal stability, and those with sounder financial institutions such as Ivory Coast and South Africa, had been more resilient to external financing shocks.
“Moreover, foreign exchange pressures have largely abated since the end of 2023. The median current account deficit is projected to narrow by 0.7 percentage points of GDP in 2024, due in part to fiscal consolidation efforts.”
The latest report comes as consumer price inflation in South Africa cooled below the 4% mark to 3.8% this week for the first time since 2021. Coupled with an extended suspension of load-shedding, this has buoyed the mood of much of the private sector.
The Bank’s decision to cut the repo rate in September was well received by various industries and met with the expectation that the cuts would keep coming when the committee meets again in the week of November 21.
Minerals Council of South Africa economist Andre Lourens said while the recent strengthening of the rand was positive for imports and inflationary pressures, rising international petroleum product prices remained a challenge to transport inflation beyond October.
“Central banks globally are beginning to adopt a more accommodative stance as global inflation subsides, with the Bank following suit by reducing the repo rate by 25 basis points in September. Our base case scenario anticipates that the Bank will implement an additional 25 basis point cut in November, bringing the total reduction to 50 basis points for the year,” Lourens said.
He said the council’s forecast was for headline CPI to moderate materially further to less than 3% year on year in October, supported by a further fuel price decline.
Remarking on the positive sentiment surrounding South Africa’s GNU, the IMF said growth was expected to improve after positive post-election sentiment and a reduction in power outages.
The lender said regional growth, at a projected 3.6% in 2024, was generally subdued and uneven, though it is expected to recover modestly next year. In some resource-intensive countries, structural weaknesses in the business environment and governance hampered efforts to diversify economies hit by a decline in commodity prices.
“Resource-intensive countries continue to grow at about half the rate of the rest of the region, with oil exporters struggling the most. Factors dampening growth include conflict, insecurity, drought and electricity shortages.”
According to the World Bank, sub-Saharan African growth was last at 3.7% in 2022 and reached 4.3% in 2021. However, the last time it breached the 4% mark before that was in 2014 with 4.9%. Still, nine of the 20 fastest-growing economies in the world are in the region.
However, the IMF warned that most of the region struggled with low growth, insufficient jobs and social exclusion, leading to macroeconomic vulnerabilities and increasing risk of social unrest.
“The region must meet the challenge of creating large numbers of good jobs. This will involve reducing barriers to the expansion of the formal sector and supporting productivity and incomes in the informal sector.
The region must meet the challenge of creating large numbers of good jobs. This will involve reducing barriers to the expansion of the formal sector and supporting productivity and incomes in the informal sector
— IMF
“Some potential entry points for policy [include] increasing access to credit for formal and informal firms; supporting youth, including by aligning education and training with market needs; and enhancing opportunities for women by ensuring that girls stay in school and improving women’s access to finance.”
The IMF said diversifying economies was imperative, particularly for resource-intensive countries struggling with low growth. This would require improving the business environment to spur private sector-led growth, investing in people and greater investment in infrastructure.
Investec treasury economist Tertia Jacobs said the National Treasury and the Reserve Bank had both pencilled in GDP growth forecasts for 1.6% this year and 1.8% next. She said Moody’s and S&P had expressed confidence in the GNU but this had not yet translated into a meaningful upgrade of GDP growth forecasts.
“It’s all contingent on whether fixed investment as a percentage of GDP is going to increase. Yes, we are entering a cyclical upswing.” She said with the cessation of load-shedding, more people were going back to shopping malls.
“We have inflation coming down meaningfully ... driven by the decline in the fuel price ...the Reserve Bank started a very gradual rate-cutting cycle and it looks like the global growth environment can be slightly more supportive. But to breach that 2%, it’s going to be the infrastructure fixed investment.”
She said while the government’s Operation Vulindlela focuses mostly on removing blockages at the legislative and regulatory levels, the network industries will carry the project pipeline where growth will be carried by public-private partnerships including the development of 14,000km of transmission lines and new fixed investment in rail and logistics infrastructure.
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