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World Bank remains optimistic SA’s economic growth will recover more than 1% this year

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The World Bank’s forecast is in line with the SA Reserve Bank’s, which projected growth at 1.2% this year, improving to 1.6% by 2026.

An informal vendor selling goods to people who walk past. Picture: Henk Kruger, Independent Newspapers

THE WORLD Bank has remained optimistic that South Africa’s economic growth will recover more than 1% this year as a result of easing structural constraints and forecast slowing consumer inflation.

The World Bank’s Africa’s Pulse report for April, released on Monday, underscored a projected boost in growth in the sub-Saharan African region.

“Economic activity in South Africa is set to rebound from 0.6% in 2023 to 1.2% in 2024 and slightly accelerate to 1.4% in 2025-26,” said World Bank chief economist Andrew Dabalen.

“The gradual easing of structural constraints — in particular, electricity load shedding and logistics problems in freight rail and ports — and easing of cost-of-living pressures on households are contributing to this rebound.”

The World Bank’s forecast is in line with the SA Reserve Bank’s which projected growth at 1.2% this year, improving to 1.6% by 2026, after its Monetary Policy Committee unanimously decided to hold the repo rate unchanged at 8.25% for the seventh consecutive time last month on the back of elevated headline inflation.

The World Bank said a pause in the monetary policy adjustment cycle was an option for countries with rates of inflation that were declining but still have not converged to their central bank’s target.

It said the central bank may want to keep interest rates higher for a longer period until inflation is securely on the path to reaching its target.

An earlier-than-expected policy rate cut may fuel an inflationary comeback once the aggregate demand recovers.

“For instance, as of February 2024, South Africa has kept its monetary policy rate at 8.25% since May 2023,” the bank said.

“Other countries that have kept their policy rates constant for more than seven consecutive months include countries that are pegged to the South African rand (Lesotho and Namibia), the Bank of Central African States, and Mauritius, among others.”

The report also found that economic activity was set to rebound in Sub-Saharan Africa, supported by increased private consumption and declining inflation.

However, Dabalen said there were signs of a fragile economic recovery in sub-Saharan Africa as there was not enough to make a significant dent in poverty on the continent.

After bottoming out at 2.6% in 2023, Dabalen said economic growth in sub-Saharan Africa was expected to reach 3.4% in 2024 and 3.8% in 2025.

“The recovery is primarily driven by greater private consumption growth as declining inflation boosts the purchasing power of household incomes.

“Investment growth will be subdued as interest rates are likely to remain high while fiscal consolidation constrains government consumption growth,” Dabalen said.

“African governments must tackle structural inequality to foster stronger and more equitable growth, by restoring macro-economic stability, promoting inter-generational mobility, supporting market access, and ensuring that fiscal policies do not overburden the poor.

“The international community can also play a role by providing more concessional financing to facilitate the implementation of structural reforms and supporting external debt management.”

– BUSINESS REPORT

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