/ 31 January 2024

Clouds part for global economy, but SA’s prospects remain gloomy

International Monetary Fund Building In Washington,, D.c.
The International Monetary Fund has slashed South Africa’s 2024 growth forecast as the country’s economy grapples with logistics constraints. (Andrew Harrer/Bloomberg via Getty Images)

With inflation easing and the likelihood of a recession receding, the global economic outlook has brightened, according to the International Monetary Fund (IMF). 

Although “the clouds are beginning to part” — as IMF chief economist Pierre-Olivier Gourinchas put it — this does not seem to be the case for South Africa’s economy, which has had its growth prospects slashed in the international financial institution’s latest update on the World Economic Outlook.

In its World Economic Outlook, released in Johannesburg on Tuesday, the IMF projects global growth will hit 3.1% in 2024, 0.2 percentage point higher than forecast in October 2023.

The IMF expects global growth will be buoyed by greater-than-expected resilience in the United States and several large emerging market and developing economies, as well as economic stimulus in China. 

Moreover, global headline inflation is expected to fall to 5.8% year-on-year in 2024 and to 4.4% in 2025, with the latter year’s forecast revised down. Falling inflation will support interest rate cuts, bolstering economic growth.

On interest rate cuts, Gourinchas said: “We are almost there, we’re not quite there yet.”

He added that central banks, including the South African Reserve Bank, will probably hold off until the second half of 2024 to cut rates.

Although some emerging market economies — including Brazil, Russia, India and China — could see better-than-expected growth in 2024, South Africa stands out as a laggard. 

The IMF now expects South Africa’s economy will grow 1% in 2024, down from 1.8% projected in October — the second-largest downward revision next to Saudi Arabia, which will endure the cost of oil production cuts this year.

The IMF’s forecast is also lower than the Reserve Bank’s, which has the country’s 2024 growth at 1.2%. The IMF has attributed its lower growth forecast to the effect of Transnet-induced logistical constraints on economic activity. 

Daniel Leigh, who heads the world economic studies division in the IMF’s research department, noted that the country’s logistics crisis — paired with its ongoing energy quagmire — have hamstrung the economy. Resolving these crises is a priority, he added.

South Africa’s economy is expected to grow 1.3% in 2025 as those structural bottlenecks start to subside, he noted.

Leigh added that a large number of countries are heading to the polls in 2024, raising the risk of additional budgetary pressures. There could also be pressures on reform momentum.

Although the world’s economic prospects have improved, the IMF has flagged a number of risks to its outlook.

These include the possibility of new commodity and supply disruptions, as tensions in the Middle East — which produces about 35% of the world’s oil exports — escalate. Gourinchas said shipping costs between Asia and Europe have increased markedly, with attacks on vessels in the Red Sea have resulted in cargo being rerouted around Africa. 

“While disruptions remain limited so far, the situation remains volatile,” he noted.

The World Economic Outlook also points to extreme weather conditions which could, together with the El Niño phenomenon, cause food prices shocks, jeopardising the downward inflation trend.

The IMF advises policymakers that a renewed focus on fiscal consolidation is needed to create greater room to manoeuvre in the future. It also underlines the importance of structural reforms to supporting growth amid fiscal constraints.

Countries should also commit to strengthening multilateral cooperation, the IMF counsels, noting that this is vital to avoiding geopolitical fragmentation — something the institution has flagged in the past as coming with heavy costs to the global economy.