SA economic outlook revised down by IMF

By Jessica Anne Wood

The latest World Economic Outlook released by the International Monetary Fund (IMF) on Tuesday 19 January 2016 has projected that global growth will be at 3.4% in 2016, a slight increase from the 3.1% estimated for 2015. “The pickup in global activity is projected to be more gradual than in the October 2015 World Economic Outlook (WEO), especially in emerging market and developing economies,” said the report.

The estimate growth for South Africa during 2015 is 1.3%, the IMF has revised the outlook for 2016 to 0.7%, which is a -0.6% difference from the report issued in October 2015. The outlook for 2017 has also been revised down to 1.8% which is a difference of -0.3% from the last report.

Economists’ views on the revision
Mike Schussler, an economist at, noted: “Still on the optimistic side of things – I suspect we are going to get a decline in actual GDP (gross domestic product) this year as commodity prices fall and make life difficult for a commodity exporter like SA. I suspect we will decline by about one percent and that [a] shrinking economy will bring lots of pressures to bear. Lower government revenue [will] lower spending on actual goods and services as debt will cost more and the interest bill will be the real thing growing.”

FNB (First National Bank) economist, Alex Smith, stated: “We think that the IMF remains a little too optimistic as our forecast for 2016 and 2017 is a little below that of the IMF.”

The FNB Economics Weekly, released on 15 January 2016, revised their GDP outlook for 2016 to 0.5%. The reasons listed for this downward revision is “low confidence, rising rates and elevated cost growth weigh on the spending and investment intentions of households and corporates.”

FNB added: “All told 2016 is likely to be SA’s most difficult year since the financial crisis. Despite the current challenges, we are expecting next year to be better from both a domestic and international standpoint and as such domestic GDP growth is forecast to expand to 1.2% in 2017.”

When asked if he thinks this will have an impact South Africa and the economy, Schussler said: “Yes, I think people and our leaders are slowly understanding that times are tough and survival and efficiency of the economy is key.”

However, Smith stated that economists have known that 2016 will be a tough year, and therefore the announcement and revision by the IMF is nothing new. “However, due to the IMF’s prominence the negative outlook is getting a lot of media coverage and as such this news may dissuade investors from putting money into SA.”

The impact on consumers
According to Schussler, consumers are going to start experiencing the effect of the weakening Rand, which will affect the price of things such as maize and petrol, as well as chicken. He noted that is will be especially hard on the poor.

In addition to these effects, Schussler highlighted that car, furniture and home sales will also experience a decline, as will government revenue, and profit margins will come under pressure.

“The better side may be gold mining the price of which has risen about 50% in Rand terms and that could be a real help. Oil fall will help all transport companies, and me and you as consumers too. But interest rates and electricity prices increasing will not help at all. Medicine prices will increase twice this year instead of once,” stated Schussler.

However, in comparison, Smith revealed that the consumers are unlikely to be affected by the IMF forecast, as “the reason for the weak outlook is partly because consumers are under pressure.” The downward revision is premised on the worsening consumer outlook.

Smith explained that the reasons for this deterioration in consumer outlook include rising inflation, rising interest rates, low employment growth and low consumer confidence.

The latest Consumer Price Inflation (CPI) results, released on 20 January, revealed that in December 2015, the headline CPI annual inflation rate was 5.2%, which is an increase from the 4.8% experienced in November 2015. While this is lower than the inflation experienced in December 2014 (at 5.3%), it was the highest increase in 2015, a time when consumers were facing food and fuel increases, rising interest rates, and the impact of the drought.

Schussler and Smith have competing views when it comes to whether or not the latest WEO report from the IMF will have an impact on the interest rate decision to be made by the South African Reserve Bank (SARB) later this month.

According to Schussler, while the economy is struggling, the SARB will have to increase interest rates. “The higher interest rates will stop consumers just buying and we need that, as our current account is under pressure as we buy more than we sell,” said Schussler.

However, Smith does not believe that this is the case, stating: “The SARB prepare their own forecasts, so a change in the IMF forecast for SA shouldn’t affect the SARB much.”

The global outlook
The WEO report noted that “global growth is projected at 3.4 percent in 2016 and 3.6 percent in 2017.”

Advanced economies are projected to grow by 2.1% in 2016. Emerging market and developing economies are expected to grow to 4.3% in 2016 from the four percent experienced in 2015.

“Overall, forecasts for global growth have been revised downward by 0.2 percentage point for both 2016 and 2017. These revisions reflect to a substantial degree, but not exclusively, a weaker pickup in emerging economies than was forecast in October,” stated the report.

It added: “Risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy: a generalised slowdown in emerging market economies, China’s rebalancing, lower commodity prices, and the gradual exit from extraordinarily accommodative monetary conditions in the United States. If these key challenges are not successfully managed, global growth could be derailed.”

Furthermore, the report pointed out that growth in emerging market and developing economies declined for the fifth consecutive year in 2015. In comparison, advanced economies achieved a modest recovery.

The latest GDP figures out of China, which were released earlier this week, showed that in 2015 the country achieved growth of 6.9%, which is the lowest GDP figures in 25 years.

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