Windhoek – The year 2017 is likely to be challenging for countries whose earnings are mainly dependent on mining output and the trade in commodities.
The forecasts are that commodity prices are not likely to recover anytime soon, and as such, countries whose economies are propped up by commodity prices are being advised to boost revenue streams through the expansion of tax bases.
They are also encouraged to continue cutting on non-priority spending.
The prediction should not be surprising for Namibia, whose recent mid-year budgetary cuts brought on a freeze in new capital projects and new recruitments and has put at risk key social safety nets, such as the provision of drought relief aid.
“If you look ahead, the general consensus is that commodity prices are not going to recover any time soon, so countries who are commodity exporters are stuck with an unpleasant adjustment challenge,” Sean Nolan, deputy director of the Strategy, Policy and Review Department at the International Monetary Fund (IMF), said in one of the latest press briefings for international journalists.
“The need to probably boost revenues, expand tax bases, cut non-priority spending – it’s not a pleasant message to hear; it’s not a pleasant message to deliver, but it’s sort of inevitable arithmetic from the big fall in commodity prices,” Nolan said.
South Africa – southern Africa region’s biggest economy – is expected to “improve somewhat”.
The IMFs predicts that new energy generation plants would help South Africa’s economic growth, while in the medium-term its macro policies are expected to be shifting towards a more neutral stance from the contractive stance they’ve had and they are likely to have in the near term. “What we saw in 2016 was that growth was stuck in low gear. It’s going to improve somewhat next year to a still-weak pace of recovery of 0.8 percent, and then improve a bit further,” says Oya Celasun, chief of the world economic studies division in the IMF’s Research Department.
“Beyond cyclical factors, including the decline in commodity prices, structural factors have also been weighing on growth and are projected to do so going forward. Those include, importantly, power provision issues, which the authorities are addressing, but also an inadequate level and mix of skills in the economy, and more recently also policy uncertainty.
“So looking ahead, more inclusive labour market policies, more education, broad-based reforms to education are need to boost growth,” says Celasun.
Nevertheless, the IMF say recent data suggests the global economic landscape started to shift in the second half of 2016. Developments since last summer indicate somewhat greater growth momentum coming into the new year in a number of important economies.
“Our earlier projection, that world growth will pick up from last year’s lacklustre pace in 2017 and 2018, therefore, looks increasingly likely to be realised. At the same time, we see a wider dispersion of risks to this short-term forecast, with those risks still tilted to the downside. Uncertainty has risen,” IMF economic counsellor Maury Obstfeld said this week.
The IMF is projecting that global growth will rise to a rate of 3.4 percent in 2017 and 3.6 percent in 2018, from a 2016 rate of 3.1 percent. Much of the better growth performance expected this year and next stems from improvements in some large emerging market and low-income economies that in 2016 were exceptionally stressed.
“That being said, compared to our view in October, we now think that more of the lift will come from better prospects in the United States, China, Europe, and Japan,” said Obstfeld.
In light of the U.S. economy’s momentum coming into 2017 and the likely shift in policy mix, IMF has moderately raised its two-year projections for U.S. growth.
At this early stage, however, the specifics of future fiscal legislation remain unclear, as do the degree of net increase in government spending and the resulting impacts on aggregate demand, potential output, the federal deficit, and the dollar. There is thus a wider than usual range of upside and downside risks to this forecast.
The IMF cautions that the scenario of a widening of global imbalances intensifies the risk of protectionist measures and retaliatory responses. It would also imply a faster than expected tightening of global financial conditions, with resulting possible stress on many emerging market and some low-income economies.
Some emerging and especially low-income commodity exporters could benefit from higher export prices, but importers would then lose. The details of the U.S. policy mix matter, and as these become clearer, we will adjust our forecast and spill over assessment, the IMF said.
Among emerging economies, China remains a major driver of world economic developments. The IMF’s China growth upgrade for 2017 is a key factor underpinning the coming year’s expected faster global recovery.
This change reflects an expectation of continuing policy support, but a sharp or disruptive slowdown in the future remains a risk, given continuing rapid credit expansion, impaired corporate debts and persistent government support for inefficient state-owned firms.