The International Monetary Fund (IMF), in its latest World Economic Outlook released last week, shaved half a percentage point off its 2022 forecast for global growth to 4.4%. Growth for 2021 is estimated to have been 5.9%. 

“The global economy enters 2022 in a weaker position than previously expected. As the new Omicron Covid-19 variant spreads, countries have reimposed mobility restrictions. Rising energy prices and supply disruptions have resulted in higher and more broad-based inflation than anticipated, notably in the United States and many emerging market and developing economies. The ongoing retrenchment of China’s real estate sector and slower-than-expected recovery of private consumption also have limited growth prospects,” the Washington-based lender said.

“Elevated inflation is expected to persist for longer than envisioned… with ongoing supply chain disruptions and high energy prices continuing in 2022. Assuming inflation expectations stay well anchored, inflation should gradually decrease as supply-demand imbalances wane in 2022 and monetary policy in major economies responds,” the report said. 

This all bodes ill for South Africa’s fragile economy, which the IMF estimates grew by 4.6% in 2021 — below official forecasts such as the Reserve Bank’s 4.8% estimate. The IMF sees South African growth then slowing to a crawl of 1.9% this year, and 1.4% in 2023. This follows the 6.4% contraction of 2020, meaning pre-pandemic output levels will not be reached until late 2023 at the earliest. 

Global headwinds will be among the factors behind this poor performance. Slower growth in China will dampen demand for the commodities that South Africa pulls out of the ground for export, such as platinum group metals, iron ore and coal. 

“A broader slowdown in China will affect global prospects, principally via spillovers to commodity exporters and emerging markets,” the IMF noted. 

On the other hand, rising oil prices will fan domestic inflation, which in turn could prompt the South African Reserve Bank to hike rates faster and higher than expected. There is no vaccine against the consequences of slowing global growth and rising global inflation.  

Of course, South Africa’s slow-growth trajectory is also homegrown. In fact, it’s proudly South African! Policy paralysis, Eskom’s woes, violence and social unrest, a failing state, a low savings rate — these are just a few of the many domestic constraints to economic growth. Combined with the current state of the global economy, it’s perhaps a wonder that the South African economy grows at all. DM/BM

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