IMF lowers South Africa economic growth forecasts

South Africa's economic growth is likely to moderate in 2012 due to weak external conditions and global uncertainty, the International Monetary Fund said on Thursday, adding monetary policy should remain accommodative given limited fiscal space.

South Africa must take bold action to curb soaring unemployment, even as officials work against the effects of global economic turmoil.

The International Monetary Fund slightly dimmed South Africa's 2012 growth forecast to 2.6 percent and warned that chronic joblessness was a risk to the continent's biggest economy.

"If not addressed, the stubbornly high unemployment rate could become politically and socially unsustainable," an IMF report said.

Released after a visit by IMF representatives three months ago, the study also warned of external risks from the eurozone and a Chinese slowdown that could see less demand for exports and a further decline in commodity prices.

The Fund revised lower a forecast for growth of 2.7 percent issued in May.

"Although the 2012 GDP growth rate is likely to moderate to about 2.6 percent given the weak external conditions and heighted global uncertainty, it is projected to gradually recover over the medium term to its potential rate of about three and a half percent," it said.

The forecast for 2013 was cut from 3.6 percent to 3.4 percent.

Some key domestic risks identified were the high unemployment rate, which officially hovers around 25 percent, and the ballooning cost of public sector wages.

"The growing public sector wage bill is a concern and the composition of spending needs to be rebalanced away from the wage bill and toward capital spending," said the report.

The National Treasury welcomed the assessment, saying "many of the issues raised by the IMF report are already reflected in the priorities and outcomes that government has set itself.