'Sharp slowdown' in growth for SA, says World Bank as it cuts forecast

The World Bank has revised down South Africa’s growth prospects for this year and the next two years, citing continued policy uncertainty and the financial burden presented by Eskom to the fiscus.

According to a report on economic outlook for Africa released on Wednesday, the economy is expected to grow by 0.8% in 2019, the same rate as in 2018. 

The rate is 0.5 percentage point lower than the April forecast. The report says growth is expected to rise to 1.0 % in 2020, which is 0.7 percentage point lower than in April. 

Growth is seen reaching 1.3% in 2021, 0.5 percentage point lower than the April estimate.

"These large downward revisions reflect the sharp slowdown in real GDP growth in the first quarter of 2019, low investor sentiment, and persisting policy uncertainty, including whether a solution could be found for Eskom, fiscal slippages would be averted, and structural reforms would be undertaken," said the report.

It noted that a combination of power cuts, low business confidence, and political uncertainty prolonged the decline in investment and dampened consumption and export growth.

Weak recovery

In September, ratings agency Moody's cut down the country's growth forecast for 2019 from 1% in June to 0.7%, because of slow pace in policy implementation and low investor confidence.

South Africa’s fragile economic growth has faced headwinds from different directions, including the ongoing challenges of high unemployment and inequality.

The National Treasury forecast growth of 1.5% in the February budget, and a new estimate is likely to be announced in the mid-term budget later this month.

Impact on Sub-Saharan Africa

Average growth in Sub-Saharan Africa was expected to rise modestly, from 2.5% in 2018 to 2.6% in 2019. This would reach 3.1% in 2020 and 3.2% in 2021. Excluding Nigeria, South Africa and Angola, growth in the rest of sub-Saharan Africa is projected at 4.0 % in 2019.

"Africa’s economies are not immune to what is happening in the rest of the world, and this is reflected in the subdued growth rates across the region," said Albert Zeufack, Chief Economist for Africa at the World Bank.

The World Bank added that recovery in these countries, which are the region’s three largest economies, "has remained weak and is weighing on the region’s prospects". South Africa's overall fiscal deficit is expected to increase significantly, it said.