IMF revises SA growth outlook upward to 3.1%, projects stronger global recovery of 6%

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The IMF has revised the growth outlook for South Africa from 2.8% to 3.1%.
The IMF has revised the growth outlook for South Africa from 2.8% to 3.1%.
  • The International Monetary Fund (IMF) has revised its global growth outlook from 5.5% to 6% for 2021, with growth moderating to 3.3% in the medium term.
  • Similarly, the multilateral institution upwardly revised the growth outlook for South Africa, from 2.8% to 3.1%.
  • The IMF says there is likely to be increasing income inequality due to the pandemic.

The IMF expects a stronger global recovery and has revised the growth outlook from 5.5% to 6% in 2021.

The IMF on Tuesday released its World Economic Outlook report as part of the IMF-World Bank spring meetings this year.

The multilateral institution upwardly revised the growth outlook for South Africa from 2.8% to 3.1%. By comparison, the South Africa Reserve Bank (SARB) expects the domestic economy to expand to 3.8%, and the National Treasury sees the economy rebounding to 3.3%, from a contraction of 7%. The World Bank expects the SA economy to grow to 3% in 2021.

Last week in its Quarterly Bulletin for March 2021, the SARB said its records show that in 2020, the SA economy suffered its second-largest contraction in 100 years. The SARB started keeping records in 1912.

Much of the domestic economy and that of the world's economic recovery depends on the rollout of Covid-19 vaccines.

The IMF indicated that the robust growth is attributed to additional fiscal support in a few large economies, as well as the distribution of vaccines which will fuel recovery in the second half of the year.

The global economy is estimated to have contracted by 3.3% in 2020, and the IMF expects this would have been three times worse without the "extraordinary" policy support rolled out by nations. "Thanks to unprecedented policy response, the Covid-19 recession is likely to leave smaller scars than the 2008 global financial crisis," the report read.

Global growth has been revised to 4.4% in 2022, and over the medium-term, it is expected to moderate to 3.3%.

But the recovery is not even - emerging market economies and low-income developing counties are expected to suffer "more significant" medium-term losses due to the pandemic, the report read.

"Unlike after the 2008 crisis, this time it is emerging markets and low-income countries that are expected to suffer greater scarring, given their more limited policy space," said Gita Gopinath, economic counsellor and director of research at the IMF.

The sub-Saharan Africa region - which includes Ghana, Kenya, South Africa and Nigeria - continues to feel the pandemic's impacts. The area suffered a contraction of -1.9% in 2020 but is expected to rebound to 3.4% in 2021 - lower than what was anticipated before the pandemic.

"Tourism-reliant economies will likely be the most affected," the report read. "Output losses have been particularly large for countries that rely on tourism and commodity exports and for those with limited policy space to respond."

While China returned to its pre-Covid-19 GDP levels in 2020, the US is expected to surpass its pre-Covid-19 GDP levels in 2021. Other nations could take as long as 2023 to recover, the IMF indicated.

Increasing income inequality

The IMF also highlighted that income inequality would likely increase significantly, mainly due to the pandemic. "Close to 95 million more people are estimated to have fallen below the threshold of extreme poverty in 2020 compared to pre-pandemic projections," the report read.

There have also been "learning losses", particularly in low-income and developing countries which had to introduce school closures. "Unequal setbacks to schooling could further amplify income inequality."

The development of the Covid-19 pandemic - such as the emergence of new strains - remains a risk to the global outlook, the IMF warned.

The IMF suggested that policymakers prioritise prudent policies in the face of uncertainty. Policymakers should also be prepared to "flexibly adjust" policy support.

"… Countries will need to tailor their policy responses to the stage of the pandemic, the strength of the recovery, and structural characteristics of the economy," the report read.

"While the pandemic continues, policies should first focus on escaping the crisis, prioritising health care spending, providing well-targeted fiscal support, and maintaining accommodative monetary policy while monitoring financial stability risks."

The IMF also called for strong international cooperation - not only to narrow the gap in living standards of low-income developing countries but also to ensure the universal distribution of vaccines, at affordable prices.

"Faster progress in vaccinations can uplift the forecast, while a more prolonged pandemic with virus variants and delayed vaccines can lead to a sharp downgrade," said Gopinath. "On the international stage, first and foremost, countries need to work together to ensure universal vaccination. While some countries will get to widespread vaccinations by the summer, most will likely have to wait till the end of next year," Gopinath added.

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