World Bank cuts South Africa’s growth forecast for 2014

THE World Bank has revised South Africa’s economic growth outlook in 2014 to 2.7% from an earlier forecast of 3.2%. 

In its economic update for South Africa released on Tuesday, it also projected economic growth to improve to 3.4% in 2015.

Despite the downward revision, the World Bank said economic growth this year would be much better than the expected 1.9% growth in 2013 and would be boosted by an
improvement in global demand and local exports.

World Bank lead economist Catriona Purfield said, however, that a "disorderly" adjustment in capital flows stemming from the tapering of US quantitative easing, possible lower commodity prices and strikes locally could cause economic growth to come in below expectations.

"The forecast is subject to potential downside risks from developments in international markets as well as regional and domestic issues," she said.

The World Bank said South Africa would have to adopt measures to ensure faster-growing exports, which would be helped by the weak rand and more demand from the country’s trading partners. The rand has maintained a weaker bias since last year.

The measures to be adopted include ensuring greater competition among companies, resolving infrastructure constraints and cutting logistics costs, as well as deeper regional integration in goods and services. The challenge around infrastructure constraints relates mainly to electricity supply shortages, Ms Purfield said.

The World Bank urged competition authorities to intervene to ensure more market participants, and said tariff-setting authorities should cut the charges exporters incurred for the use of ports, rail and telecommunications.

Exports have underperformed, with figures showing exports from South Africa only grew 0.6% per year between 2005 and 2011. According to the report, had local exports grown as fast as the middle-income country average, they would be two-and-a-half times bigger.

The report added that export growth would have to accelerate substantially to boost gross domestic product growth to the levels of more than 5.5% specified in the National Development Plan, the growth and development strategy for South Africa until 2030.

Credit: Ntsakisi Maswanganyi