The International Monetary Fund (IMF) has made a small 0.2 percentage point upward revision to South Africa’s projected growth for 2026 in its January World Economic Outlook (WEO), forecasting that the economy will grow by 1.4% this year.

Its 2027 growth projection of 1.5% for South Africa, which was published in October, has been sustained, while the January WEO estimates that South Africa’s GDP expanded by 1.3% in 2025.

The IMF update for South Africa is in line with projections released by the World Bank in its January ‘Global Economic Prospects’ report, as well as the IMF’s small upward revision for global growth.

The IMF expects the global economy to expand by 3.3% in 2026, also a 0.2 percentage point upward revision relative to its October report. It has sustained its 3.2% projection for world growth in 2027.

Global headline inflation, meanwhile, is expected to decline from an estimated 4.1% in 2025 to 3.8% in 2026 and further to 3.4% in 2027.

“This steady performance on the surface results from the balancing of divergent forces,” the report states.

“Headwinds from shifting trade policies are offset by tailwinds from surging investment related to technology, including artificial intelligence (AI), more so in North America and Asia than in other regions, as well as fiscal and monetary support, broadly accommodative financial conditions, and adaptability of the private sector.”

The January WEO also forecasts that growth in sub-Saharan Africa will accelerate from 4.4% in 2025 to 4.6% in 2026 and 2027.

This upward revision is supported by buoyant conditions for certain commodities produced in Africa, macroeconomic stabilisation in some countries, and reform efforts in key economies, with research department division chief Deniz Igan making specific reference to South Africa’s structural reforms during a media briefing.

However, the January WEO also warns that risks to the outlook remain tilted to the downside, with economic counsellor and director of the research department Pierre-Olivier Gourinchas confirming that the current outlook assumed that there would be no additional hike in tariffs by the US beyond those imposed last year, as well as no trade policy retaliations by other countries.

TARIFF RISKS

However, the IMF confirmed that  the projections used in the January WEO Update were finalised before the end of December, predating the US military’s capture of Venezuelan President Nicolás Maduro and a threat by US President Donald Trump that he would impose additional tariffs on several EU countries that he felt were impeding his acquisition of Greenland.

On January 17, Trump issued a tariff ultimatum to Denmark, Norway, Sweden, Finland, France, Germany, the Netherlands, and the UK, indicating that a 10% tariff would be imposed on February 1, rising to 25% on June 1, unless an agreement was reached on America’s “complete and total purchase of Greenland”.

Gourinchas noted that the upgrade to the WEO growth outlook in January relative to October was partly attributed to the fact that the tariffs imposed by the US, as well as the retaliatory actions taken by other countries, were more moderate than had been anticipated when Trump first announced the Liberation Day tariff in April. In addition, US retailers had refrained from passing on the costs of the higher tariffs to consumers.

For this reason, geopolitical risks and further trade tensions were among the key downside risks highlighted by the IMF.

“We are establishing our projections in the WEO under the assumption that the level of tariff remains unchanged,” Gourinchas said, indicating that its current projections were for the effective US tariff rate being imposed on the rest of the world to remain at about 18.5%.

“If we were to enter a phase in which there would be [tariff] escalations and tit-for-tat policies … that would certainly have even more of an adverse effect on the economy, both through direct channels, but also through confidence, investment and potentially through a repricing by markets that would look at the situation and reassess the value of financial markets.”

The IMF is, thus, an advocate for a solution that will maintain stable and predictable trading rules to provide a greater level of certainty.

The WEO Update also warned that any reevaluation of productivity growth expectations about AI could lead to a decline in investment and trigger an abrupt financial market correction, spreading from AI-linked companies to other segments and eroding household wealth.

“Larger fiscal deficits and high public debt could put pressure on long-term interest rates and, in turn, on broader financial conditions.”