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International Monetary Fund lowers South Africa’s economic growth forecasts, urges reforms

10 October 2018

It was the first downgrade since July 2016.

Compared to the projections made in April, the current one for 2018 is lower by 0.1 per cent and for 2019 by 0.4 per cent.

Risks to the global outlook have risen in the last three months and tilt to the downside, the International Monetary Fund said.

"There are clouds on the horizon", he said.

The IMF said the RRR cut, together with other easing and stimulus policies, "may help support economic growth in the near term in the face of rising external pressures.(but) may entail greater risks to financial stability over the medium term should they set back progress toward reducing financial vulnerabilities". The Asian Development Bank has forecast 4.8 percent and the State Bank of Pakistan expects 5 percent GDP growth. But growth could weaken significantly further if additional trade protectionist measures are put in place, it said.

Dollar-denominated bonds chalked up solid gains, with many issues adding around 1.5 cents, according to Tradeweb data - their biggest daily gain in several weeks.

The IMF said it was now predicting 3.7 percent global growth in both 2018 and 2019.

This comes after the Government also revived upwards growth projection for this year, saying the economy is showing signs of recovery despite a number of challenges and risks.

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In September, the USA implemented another round of tariffs on $200 billion worth of Chinese goods, which were met with countermeasures out of Beijing on $60 billion worth of US goods. In September, Trump imposed tariffs on almost $200 billion of Chinese imports, with China responding with higher tariffs on about $60 billion of USA imports.

Released in Bali during the annual meeting of the International Monetary Fund and the World Bank, the IMF's flagship World Economic Outlook said its 2019 growth projection for China is lower than in April, given the latest round of USA tariffs on Chinese imports, as are its projections for India. South Africa, only 0.8 per cent this year; Angola, contracting by 0.1 per cent this year.

The Fund said that revenue gains from non-financial public corporations and government financial assets alone could be as high as 3 per cent of GDP a year, equivalent to the annual corporate tax collections across advanced economies.

"It was a combination of factors that basically affected emerging and frontier markets".

On monetary policy, the IMF said it should be tightened to anchor expectations where inflation is expected to pick up, say in India.

Core inflation, which excludes volatile items such as energy, will vary from country to country, it added. The US growth forecast was cut by 0.2 percentage points in 2019 tp 2.5pc. This growth exceeds that achieved in any of the years between 2012 and 2016, and it occurs as many economies have reached or are nearing full employment and as earlier deflation fears have dissipated.

Some energy-rich emerging market countries have fared better due to higher oil prices, with Saudi Arabia and Russian Federation seeing forecast upgrades.

International Monetary Fund lowers South Africa’s economic growth forecasts, urges reforms