The International Monetary Fund (IMF) cut its forecast for economic growth in South Africa for a second time this year as policy uncertainty increased and the central bank raised borrowing costs.
Gross domestic product (GDP) in Africa’s most-industrialized economy will probably expand 0.6% in 2016, compared with January’s estimate of 0.7% and last year’s 1.3% growth, the Washington-based lender in its World Economic Outlook report said on Tuesday. The IMF lowered its projection for 2017 from 1.8% to 1.2%.
South Africa’s expansion last year was the lowest rate since a 2009 recession as the economy struggled to cope with a plunge in metal prices, fuelled by a slowdown in its biggest export market, China, and the worst drought in more than a century.
The Reserve Bank raised its benchmark rate twice this year to 7% to try to tame inflation that surged to 7% in February.
The forecast of weaker growth is due to “lower export prices, elevated policy uncertainty, and tighter monetary and fiscal policy,” the IMF said.
President Jacob Zuma’s decision in December to replace Nhlanhla Nene as finance minister with a little-known politician Des van Rooyen surprised investors, adding to uncertainty about the nation’s future economic policy. The president reappointed Pravin Gordhan four days later in the position he held from 2009 until 2014 after pressure from political and business leaders. The Treasury is seeking to contain spending and debt even as growth slows, with the nation’s credit-rating at risk of being downgraded to junk.
The IMF cut its 2016 growth forecast for sub-Saharan Africa by 1 percentage point to 3% and reduced next year’s estimate to 4% from 4.7%. The World Bank on Monday lowered its 2016 projection for the region by 0.9 percentage points to 3.3%. – Bloomberg