Outlook for SA economy is subdued

Forecasts for the economy's performance this year range from pessimistic to moderately optimistic as global economic uncertainty remains this year's big risk factor

The International Monetary Fund this week announced a sharp cut in its forecast for South African economic growth, saying the economy would grow 2.5% this year compared with the 3.6% forecast in September.

The new IMF forecast is lower than the Reserve Bank's revised forecast of 2.8% growth for this year.

Growth data for last year's fourth quarter has not been released yet, but the Bank and the IMF estimated the economy would grow about 3.1% last year.

Annabel Bishop, economist at Investec, said at an economic outlook conference hosted by the Gordon Institute of Business Science this week that any outlook for the South African economy should be seen within a global context.

A solution for Europe's sovereign debt crisis was "still lagging".

"There are also still issues in the US and China."

This meant South Africa had still not regained the rand value of exports in real terms that it had in the middle of 2008, Bishop said.

Last October, the National Treasury was still forecasting economic growth of 3.4% for this year, but this is expected to be reduced as finance minister Pravin Gordhan said this week the economy would probably grow less than 3% this year.

Johann Els, economist at Old Mutual Investment Group SA, said he expected economic growth of 2.7%, although total global economic chaos could cause a slump.

"Whichever way you look at it, there will be pretty acute pain felt across the board for the foreseeable future," he said.

"It already appears that parts of the eurozone have fallen into recession - how wide it will spread and how severe it will be remains uncertain."

Els said unless the government undertook wide-ranging structural economic reform, economic growth might remain stuck at about 3% a year, too low to make a meaningful dent in the unemployment rate.

But Michael Lalor, a director of the Ernst & Young Africa Business Centre, was more optimistic at the release of its Rapid Growth Market (RGM) forecast this week.

Lalor said that while South Africa's exposure to weak European demand would hurt exports, trade with China and other RGMs was growing strongly.

If the fundamentals in the economy remained sound, South Africa could expect growth rates closer to 5% from next year, he said.