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

The IMF's World Economic Outlook report, unveiled on the eve of its upcoming summit in Bali, Indonesia, estimated that global growth in 2018 would reach 3.7 percent, the same as the previous year but lower than the 3.9 percent it had forecast earlier this year.

The revised estimates includes a worsening outlook for developing economies this year and next compared to the July report, as well as downgrades for the U.S. and China in 2019.

According to the report, total nonfinancial sector debt in jurisdictions with systemically important financial sectors has grown from Dollars 113 trillion (more than 200 per cent of their combined GDP) in 2008 to USD 167 trillion (close to 250 per cent of their combined GDP).

"IMF's downgrade just goes to show how the tariff dispute between US and China is beginning to take its toll on the global economy", said Peter Cardillo, chief market economist at Spartan Capital Securities in NY.

He continued: "Trade policy reflects politics and politics remain unsettled in several countries, posing further risks".

Growth estimates for the euro area and Britain also was revised down. In addition, regulatory duties on non-essential imports have had to be introduced to curb the unnecessary growth in imports. The IMF also warned the new government that growth would likely slow and inflation rise further if it does not act fast.

And if it continues, the "escalation of trade tensions to an intensity that carries systemic risk is a distinct possibility without policy cooperation".

Top officials of government confirmed to The News that the IMF would be formally requested for providing a bailout package in the range of $6 to $8 billion depending upon the ability of Islamabad to convince the Fund management and its board members to jack up quota by 5 to 7 times along with provision of front loading by getting at least $2 billion upfront and the first tranche probably within next 4 to 6 weeks period.

The eurozone's 2018 growth forecast was cut to 2.0 percent from 2.2 percent previously, with Germany particularly hard hit by a drop in manufacturing orders and trade volumes.

The United States and China - the world's two biggest economies - are sparring over Beijing's aggressive effort to challenge American technological dominance.

"Growth is now much more uneven" than six months ago, he told reporters.

Despite the recent pullback, US stocks are near record highs and that has raised concerns over valuations, especially of high-growth stocks, such as technology and the FAANG group.

The IMF predicted that Turkish economy will grow 3.5 percent in 2018 and 0.4 percent in 2019.

However, the International Monetary Fund cautions that it has a "poor track record of predicting recessions".

The normalization of monetary policy in the United States as well as a stronger dollar and escalation in trade tensions has already begun to affect emerging market economies, the IMF said. "The report reminds us that inequality remains a serious problem and we still are not safe from financial crisis" he warned.

As such, the International Monetary Fund does not see India's growth reaching 7.5 per cent even in FY19. It is therefore closer to the government's forecast for 2.5 percent growth, and the latest projection by the European Commission (in July) for 2.3 percent.