From The International Monetary Fund
South Africa can celebrate significant progress in its first 20 years of democracy, but faces the challenge of reviving a weak economy and addressing elevated vulnerabilities the IMF said in its 2014 review of the country’s economy.
As the government’s Twenty Year Review notes, South Africa “has emerged from its deeply divided and violent past into a peaceful, robust, and vibrant democracy that has made major strides in improving the lives of its citizens.” Income levels have increased, access to education and health care has improved, and strong institutions and policy frameworks have delivered macroeconomic stability.
Yet the country faces difficult challenges. Real GDP growth is projected to fall to 1.4 percent this year, the lowest since 2010, and recover to only 2.1 percent in 2015, assuming some normalization in industrial relations. About a quarter of South Africans and half of its youth remain unemployed.
The current account and fiscal deficits are elevated relative to other emerging markets. Going forward, the consumption-driven growth model of the past few years is unlikely to be sustainable and headwinds stem from tighter global financial conditions, the uneven global recovery, reduced policy space, and softer commodity prices.
Structural constraints
As in many emerging markets, weak external demand and soft commodity prices contributed to South Africa’s economic downturn, but deep-seated structural factors also played an important role. An increase in workdays lost to strikes and increasingly binding supply bottlenecks, especially in electricity provision, were important factors behind South Africa’s growth underperformance, in addition to long-standing rigidities in product and labor markets, poor education outcomes, and apartheid legacies (see chart).
Read more at The International Monetary Fund
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