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IMF Upgrades South Africa. Really?

The IMF’s update on global growth prospects for 2017 and 2018 was published this early morning. Overall, there were few notable changes from its previous projections which were published in April. The key headlines are that:

  • Global growth outlook is unchanged at 3.5% for 2017 and 3.6% in 2018.

  • US growth was revised lower to 2.1% in both years, reflecting a less expansionary fiscal policy than previously assumed.

  • UK growth was revised lower to 1.7% for 2017 from 2.0%, but left unchanged at 1.5% for 2018.

  • Eurozone growth was revised up to 1.9% and 1.7% for both years from 1.7% and 1.6%, respectively.

  • China's expected pace of activity was revised up to 6.7% and 6.4% in 2017 and 2018 respectively.

  • India's forecast was left unchanged at 7.2% and 7.7% respectively

For Sub-Saharan Africa as a whole, GDP growth is anticipated to firm a touch to 2.7% in 2017 and remain at 3.5% the year after. But the IMF is once again at pains to highlight that per capital incomes are set to remain basically flat.

The Fund only publishes breakdowns for the two largest SSA economies, Nigeria and South Africa. The former is still envisaged to recover from last year's -1.6% contraction with unchanged 2017 and 2018 projections of 0.8% and 1.9% respectively. However, the real surprise is the upgrading of South Africa's 2017 outlook to 1.0% in 2017 (up from 0.8% in April) which is notably stronger that the 0.5% pickup (down from 1.0%) anticipated by the South African Central Bank in its latest forecasts published last week. According to the IMF, this upgrade reflects improved agricultural and mining output which it sees as outweighing weakening output elsewhere, downbeat business and household sentiment and heightened political uncertainty. However, these latter factors are expected remain prominent in 2018 when growth has been downgraded from 1.6% to 1.2% which is in line with the SARB's projection for that year.

Our own South African 2017 growth forecast chimes with the SARB's. It is difficult to see how the, albeit significant, rebound in primary sector activity will be sufficient to deliver a 1.0% pickup given that all the other sectors contracted in Q1 and will, in our view, remain subdued through to Q3.

The Bank of Ghana sliced 150bps from its benchmark interest rate today, taking it down to 21.0% which its lowest level since 2015. The cut beat the market expectation of a 100bps reduction. The accompanying press briefing nearly purred with contentment. For a start, it noted that the ongoing falls in inflation (including the key core measure which excludes volatile energy and utility prices) have fed through to lower inflation expectations. These positives are being accompanied by the relative stability of the Cedi, a pickup in activity-albeit largely driven by oil production, ongoing fiscal prudence in line with budget projections and an improved external position.

The upshot is that in the view of the Committee, with inflation firmly sliding towards the medium-term target of 8%+/-2% by 2018, it can afford to focus more on supporting activity. Consequently, further easing over the next few months looks likely. However, with the MPC acknowledging that aggregate demand pressures are rising against supply capacity it will hopefully opt for a more moderate pace of interest rate adjustments to ensure the disinflation process proceeds as anticipated. The next policy announcement is scheduled for September 25.

Botswana released figures today showing a 1.4bn BWP trade deficit in April, compared to a 1.5bn surplus in April 2016. The shortfall reflected a decline in exports which outweighed lower imports. There will be some concerns about softer diamond revenues as these account for around 80% of exports. But there are signs that prices have broadly stabilised over the last quarter. Consequently, the current account remains on track for around a 10/11% surplus this year. In addition, our forecast for broader economic growth of around 4% this year after a 4.3% 2016 showing remains unchanged.


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