IMF raises South Africa’s growth forecast for 2022

Published by
Nonhlanhla P Dube

The International Monetary Fund’s (IMF) recent global economic outlook report warns of a slowdown in global economic development, although South Africa’s prospects are more promising. South Africa’s economic growth for 2022 is now forecast to be 2.3%, up from 1.9% earlier, with 2023 projections remaining low at 1.4%.

According to the IMF, the central banks in major advanced nations are withdrawing monetary support quicker than projected, while several in emerging market and developing economies began hiking interest rates last year.

South Africa began its inflationary cycle earlier than many developed economies. It raised rates by 25 basis points in November 2021, followed by another 25bp increase in January and March 2022. Rate hikes have since escalated in response to rising inflation, with the May meeting yielding a 50bp boost and the July meeting yielding a 75bp hike.

According to the IMF, the consequent synchronized monetary tightening across countries is unparalleled in history, and its effects are projected to bite, with the global economy contracting next year and inflation slowing.

It did, however, state that central banks should “keep the course.” 
“Tighter monetary policy will inevitably have real economic costs, but delaying it will only exacerbate the hardship. Central banks that have started tightening should stay the course until inflation is tamed,” it said.

Global outlook

The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, has an increasingly bleak and unpredictable future, according to the IMF, with many of the downside risks identified in the group’s April World Economic Outlook manifesting themselves. 

The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, has an increasingly bleak and unpredictable future, according to the IMF, with many of the downside risks identified in the group’s April World Economic Outlook manifesting themselves. 

 “Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions. China’s slowdown has been worse than anticipated amid Covid-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine, ” said IMF research director Pierre-Olivier Gourinchas.

“Global output dropped in the second quarter of this year as a result.”

The IMF’s baseline prediction for global economic growth in 2022 and 2023 has been reduced by 0.4 and 0.7 percentage points, respectively, from April’s figure of 3.2 % in 2022 and 2.9 % in 2023.

“This reflects stalling growth in the world’s three major economies—the United States, China, and the euro area—with important consequences for the global outlook,” the report added.

Despite the deceleration, worldwide inflation has been revised higher, owing in part to increased food and energy prices, according to the IMF.

Inflation is expected to reach 6.6 % in advanced economies and 9.5 % in emerging market and developing economies this year, representing higher revisions of 0.9 and 0.8 percentage points, respectively, and is projected to remain elevated for a longer period of time.

In many economies, inflation has also broadened, reflecting the impact of cost pressures from disrupted supply chains and historically tight labor markets.

Worryingly, the risks to the global outlook remain “overwhelmingly tilted to the downside,” according to the IMF. These are some examples:

The conflict in Ukraine may cause a halt in Russian gas exports to Europe.
If labor markets remain too tight, inflation expectations de-anchor, or disinflation proves more costly than projected, inflation could continue stubbornly high.

Tighter global financial conditions may result in an increase in debt distress in emerging and developing economies.
Renewed Covid-19 breakouts and lockdowns could slow China’s growth even further.
Food insecurity and societal unrest could result from rising food and energy prices.
Global trade and collaboration may be hampered by geopolitical fragmentation.

“In a plausible alternative scenario where some of these risks materialize, including a full shutdown of Russian gas flows to Europe, inflation will rise and global growth decelerate further to about 2.6% this year and 2% next year—a pace that growth has fallen below just five times since 1970,” the group said.
“Under this scenario, both the US and the euro area will have near-zero growth next year, with negative knock-on effects for the rest of the world.”

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Nonhlanhla P Dube

Nonhlanhla P Dube is a senior news reporter at Rateweb. Nonhlanhla is a student of International Relations at the University of South Africa. She reports primarily on personal finance and economics. You can contact her directly by email at nonhlanhla@rateweb.co.za

Published by
Nonhlanhla P Dube
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