Business Day (Johannesburg)

22 April 2010

South Africa: IMF Sees SA Bouncing Back With 2,6 Percent Growth

Johannesburg — THE International Monetary Fund (IMF) has revised upwards its forecast for South African economic growth this year, but warned the recovery will be "tempered" by high unemployment, tight credit and rand strength.

It sees the economy growing 2,6% this year, faster than its previous forecast of 1,7% made last October.

The IMF's latest estimate is above official forecasts for growth of 2,3% this year, but just below market consensus, which sees the economy expanding 2,9%.

It sees the world economy growing 4,2% this year, revised up from 3,9% in January. Emerging giants China and India are leading the recovery from the worst global recession in six decades.

Growth in sub-Saharan Africa was set to quicken to 4,75% this year and 6% next year from 2% last year, the IMF said in its world economic outlook.

It sees SA's output rising 3,6% next year, also well above forecasts of 3,2% and consensus estimates from Reuters of 3,5%.

"Although the rebound in world trade is supporting recovery, SA's growth will be tempered by high unemployment, tight credit conditions and the recent strength in the rand," it said.

The economy shed 870000 jobs last year, not quite as bad as expected but keeping the official jobless rate at a steep 24,3%. Employment has begun to pick up, but at a slow pace as SA pulls out of recession. Private-sector borrowing fell for the fifth month running in February, pressured mainly by a fall in lending to companies.

The Reserve Bank cited rand strength as a factor behind its surprise interest rate cut last month.

Gains by the currency, which scaled a two-year peak against the euro last week, tend to erode the competitiveness of local exports.

The rand has since pulled back, but is still stronger on a trade- weighted basis since the Bank's last policy meeting. This has fuelled speculation that there could be scope for another rate cut at its policy meeting next month.

Bank governor Gill Marcus may provide some insight into the Bank's thinking when she addresses a conference hosted by the Bureau for Economic Research in Johannesburg today.

Keeping inflation inside its 3%- 6% target range is still the Bank's mandate, although it takes growth and jobs into account when making policy decisions.

The IMF sees inflation in SA at an average 5,8% this year and next, broadly in line with official estimates of 5,8% this year and 6,1% next year.

It predicts that the deficit on SA's current account, its broadest measure of trade in goods and services, will widen to 5% of gross domestic product this year and 6,7% next year. That should help check the rand's gains.

Sub-Saharan Africa had weathered the global crisis well due to its "limited integration" into the world's economy, the IMF said. Shocks hit the region mainly through trade with middle-income economies hit the hardest.

There were several risks to sub-Saharan Africa's outlook. These included the effect of a "more hesitant" recovery in the "advanced economies", which could affect commodity prices.

Although bilateral aid had held up well during the downturn, the outlook for official aid flows was subject to uncertainty due to output declines in major economies.

Political uncertainty in several economies, particularly in west Africa, has the potential to dampen their economic growth and spill over to their neighbours.

But the IMF noted that "in most cases" the sustainability of public debt trajectories had not been hit due to sound policies before the downturn.

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