IMF cuts South Africa growth forecasts as politics takes it toll

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The International Monetary Fund cut its South African economic growth forecast for this year on Tuesday, saying rising political uncertainty has dented consumer and business confidence.

The IMF said it expected South Africa’s economy to grow by 0.7 percent this year, down from an earlier projection of 1 percent given in July.

“Growth is projected to remain subdued … despite more favourable commodity export prices and strong agricultural production, as heightened political uncertainty saps consumer and business confidence,” the global lender said.

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South African growth should tick up to 1.1 percent next year, slightly lower than an earlier forecast of 1.2 percent, the IMF added in its October world economic outlook.

South Africa’s Treasury said in February it expected the economy to grow 1.3 percent in 2017, but Finance Minister Malusi Gigaba is due to announce revised projections on Oct. 25 when he presents his medium term budget policy statement to parliament.

South Africa slipped into recession earlier this year as rising inflation and high unemployment hit consumer spending, but a rebound in agricultural output has since helped the economy to return to growth.

Investors’ nerves, however, have been tested by the sacking of respected finance minister Pravin Gordhan in March, subsequent credit downgrades to sub-investment grade and allegations of corruption in state-owned firms.

A leadership contest in the ruling African National Congress (ANC) party has also heightened political uncertainty.

In December the ANC will choose a new party leader to succeed President Jacob Zuma, whose tenure has been tainted by a series of corruption scandals. Zuma can remain as head of state until an election in 2019.

The IMF maintained its GDP growth projection for Nigeria at 0.8 percent this year, a performance underpinned by a recovery in oil production and farming after the economy contracted in 2016.

“However, concerns about policy implementation, market segmentation in a foreign exchange market that remains dependent on central bank interventions and banking-system fragilities are expected to weigh on activity in the medium term,” the IMF said.

Economic growth in Kenya is seen slowing to 5 percent this year from 5.8 percent last year, the IMF said.

In September, Kenya lowered its 2017 economic growth forecast to 5.5 percent due to drought and political uncertainty.

Reporting by Alexander Winning; Editing by Olivia Kumwenda-Mtambo and Andrew Heavens

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