FIFI PETERS: The International Monetary Fund, the IMF, has pencilled in lower growth for South Africa this year. It is now expecting the economy to grow by 1.9% from its previous forecast of 2.2%. But we’re not alone in terms of getting a downgrade to our growth forecast. The IMF is also expecting a weaker performance from the global economy at large for this year.
Here to tell us why is Max Alier, the senior South Africa representative for the IMF. Max, it is good to speak with you again, sir. Can you just tell our listeners here at a SAfm why you are expecting South Africa’s economy to be weaker than your initial forecast?
MAX ALIER: Good afternoon, Fifi. Yes, sure. As you mentioned, we revised downwards our projection for growth for 2022 from 2.2% to 1.9%. That 2.2% was the projection in October. Since then, I would say, there are three factors.
The first one is the one you mentioned; we’re now forecasting a weaker performance for the global economy. We downgraded growth for the global economy from 4.9% to 4.4%. That really has an impact on South Africa.
The second reason: at the time we made the previous projection, we did not have data on the performance in the third quarter of 2021, and it was, as you may remember, weaker than initially expected, affected by the civil riots that happened last year, and also by the Covid wave that happened in July last year. So, as it would have to revise down the momentum during the second semester of last year, that also affects the forecast for this year.
Also we see business confidence that remains subdued. Therefore, as of now, we see a bit of a weaker outlook for investment this year.
Those are the three main reasons why we revised the projection downwards.
FIFI PETERS: Of those three main reasons – the much weaker performance that is expected for the global economy, the underwhelming performance of our economy in the third quarter, as well as business confidence not being in the best mood – which had the biggest impact on the growth revision?
MAX ALIER: First of all, I, the revision …. percent, 0.3 percentage points. I would say that it’s probably the first two that I mentioned. Part of the revision to the global economy is mainly driven by the weaker projections we have now for the US and for China. In the case of China, the revision is driven by the Covid-19 lockdowns – China has a very strict policy about lockdowns to contain Covid – and also because of the stress in the real-estate sector in China. China being the main trading partner of South Africa obviously has a direct impact on the economy.
Then obviously the momentum and optimism that was and is around initially, did not materialise. The third-quarter development obviously had an impact on the third reason that I said. Actually it did have an impact on business confidence.
So I will not put a quantification on each of them, but what I would say is the global economy and the weaker or underwhelming performance in the third quarter of last year.
FIFI PETERS: But what are the concerns with the US? I mean, from this side, we read their statistics. They’re at full employment. Their economy is growing businesses. We’ve just had a conversation with our market watcher that the earnings that businesses are reporting are intact. So what are the major concerns about the state of the US economy right now that has led to the chipping off in global growth expectations?
MAX ALIER: Well, for the US we revised the projection down significantly from about 5.2% to 4%. The main reason is, first of all, as you may have followed in the news, [US] President Biden’s initiative ‘Build Back Better’, which was a significant fiscal stimulus, and that initiative did not pass Congress. Our previous projection did have that fiscal stimulus in it. So we had to take that out.
The second reason is inflation in the US has been higher than expected, for longer than expected, a broader base than initially thought. That makes us believe that the tightening of monetary policy is likely to take place sooner than we were expecting last October.
Finally, the supply-chain constraints that we have witnessed around the world are still present. So the combination of these three elements is what led us to revise downward the projection for the US.
FIFI PETERS: Right. Bringing the attention back to South Africa and the business mood, how have you measured weak business confidence? I ask this against the backdrop that we have seen this government trying to meet business halfway. We’ve seen positive changes in the energy space when it comes to renewable energy, we’ve seen a government that seems to be taking a very tough stance and an iron fist to rooting out corruption that has cost the economy dearly in the past. How have you measured the present weakness that you [see] in business confidence, and do you think that some of the measures that we’ve seen from this government to try and address it have not been enough?
MAX ALIER: Yes. I think business confidence has been somehow impacted, first of all by the Covid outbreaks. Now we know, after six or seven weeks, the actual impact of Omicron. But starting in December, at the beginning, especially when the flights to South Africa were closed, there was the impact on work in the hospitality sector. That also created a lot of uncertainty. Now we know that Omicron hasn’t been as bad as initially thought, but that obviously had an impact.
The second one is [that] last year the blackouts or load-shedding episodes were more frequent than initially projected. I think that for as long as the energy security is not resolved this will weigh negatively on business sentiment. I agree with you that the government is making important efforts, especially in the area of renewable energy and trying to resolve the issues that have plagued Eskom’s performance over the last few years. But the fact is the issues still persist.
Also I’d say there’s the impact of the social unrest that happened last year. Hopefully that was a one-off episode, but something like that had not been seen South Africa before – not to that scale and not in recent years, certainly. So I think that somehow it had also a negative impact on business confidence.
FIFI PETERS: All right. Yes, many have said that incident alone, the July riots, cost the economy around R50 billion in lost output – according to some estimates.
Max, we’ll leave it there. Thanks much for your time, sir. Max Alier is the senior South Africa representative for the IMF.
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