The International Monetary Fund (IMF) revised SA’s economic growth forecast for 2016‚ this time to just 0.1% from 0.6% in April‚ the Fund announced this week. Meanwhile ratings agency Moody’s said the Souther African country’s economy is the mist likely to be hit hard by Brexit.
The IMF forecast the is the lowest growth forecast for SA by a major institution‚ and is much lower than Treasury’s 0.9% and the Reserve Bank’s 0.6%. The Rand Daily Mail reports the downscaled growth ‘stemmed mainly from SA’s linkages with China‚ heightened global financial volatility‚ and domestic politics and policies that were perceived to harm confidence’.
At 0.1% economic growth – the slowest since the recession seven years ago – per capita incomes would continue to decline and unemployment would rise further. At the moment SA’s official unemployment figure stands at 26.7% while experts says unreported unemployment is much higher.
The IMF projects economic growth at 1.1% in 2017 and at around 2% to 2.5% from 2018. Greater competition‚ labour market policies and industrial relations that work for a greater portion of the population‚ better quality of government services – especially in education – and improved governance and efficiency in state-owned enterprises would all help increase growth‚ says the IMF.
Moody’s, in it’s latest report says “South Africa’s current account deficit leaves it vulnerable to short-term capital outflows amid changes in investors’ risk perceptions and appetite”.
South Africa’s rand stumbled nearly 5 percent against the dollar on June 24, its biggest daily loss in almost five years, after Britons voted in a referendum to exit the EU. This triggering global risk aversion.
A Reuters report explains that because of South Africa’s highly liquid market and its reliance on portfolio flows to plug a current account gap of around 5 percent, the rand tends to be more sensitive than emerging market peers to swings in risk appetite.
Moody’s said South Africa, already grappling with the impact of a severe regional drought and a slide in commodity prices due to subdued demand from China, would likely avoid a recession in 2016.