End of one of SA’s worst droughts prompts IMF to raise growth forecast

By Robert Brand

(Bloomberg) – The International Monetary Fund raised its forecast for economic growth in South Africa, saying that the end of the worst drought in more than a century will lift agricultural production while rising commodity prices will boost mining.

The Washington-based lender forecast growth of 1 percent for Africa’s most industrialised economy in 2017, up from the 0.8 percent prediction it made in April. The consumer inflation rate will probably fall below the 6 percent upper limit of the central bank’s target rate in the second half of this year, it said in a statement after a so-called Article IV visit by officials this month.

Following last year’s near-stagnation, there are signs that a modest improvement in the pace of economic growth is underway,” Paolo Mauro, who led the IMF team, said in the statement. “The pace of recovery this year and the next is unlikely to prevent a further increase in unemployment and a continued decline in per-capita incomes.”

Mining production surged 15.5 percent in March from a year earlier, beating analysts’ estimates and was more than three times February’s pace. Manufacturing output rebounded in March from a decline in the previous month as the economy recovers from last year’s 0.3 percent expansion in gross domestic product, which was the slowest since a 2009 recession.

Reforms Required

The government faces a dual challenge of stimulating growth while making the economy more inclusive, the IMF said. That would require reforms of the labour market as well as state-owned companies, it said. The lender welcomed the government’s affirmation of fiscal goals following the appointment in March of Malusi Gigaba, who replaced Pravin Gordhan as finance minister.

South Africa should work to reduce its fiscal deficit to curb the likelihood of a “sizable increase” in government borrowing costs, the IMF said. Improving governance and transparency at public companies, which have been hobbled by mismanagement and inefficient spending, “would reassure investors and the public at large,” it said.

In his February budget, former minister Gordhan pledged to narrow the budget deficit to 2.6 percent of gross domestic product in the year through March 2020, from an estimated 3.4 percent in the current fiscal year.

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