THE International Monetary Fund has updated its latest World Economic Outlook projections and the overall tone tends towards the grey and doleful, but in true IMF fashion, tinged with backhanded optimism for the coming year.
The report describes the global economy as being in the middle of a “balancing act”, with countries having to juggle the legacies of the global financial crisis with a cloudy future, coupled with lower than expected potential growth.
Countries worldwide are scrambling to revise forecasts downwards, even in sub-Saharan Africa. Angola, the region’s second biggest crude producer, has knocked back growth projections to 3.9% this year, coming on the back of a brisk 6.8% expansion in 2013.
The IMF projects sub-Saharan African growth will be at 5.8% next year, besting all other regions, but of concern is that the 5.1% growth for this year is the same as last year. The lender admits world growth is”mediocre and a bit worse than forecast in July”.
While the United States and Britain are making good progress post-crisis, potential growth (output which does not induce inflation) is lower than in the early 2000s, the report notes, cautioning that trajectories are significantly different in various countries. The overall world economy is projected to grow 3.3% this year, and 3.8% next, but they are both slight downward revisions from July data.
Sub-Saharan Africa iffy, but best of the lost
Sub-Saharan Africa growth (counting 45 countries) is the highest of all the world regions, but the IMF notes that Ebola is set to have an impact on the economies of Guinea, Liberia and Sierra Leone, and according to African leaders, on the wider regional economy (See: Ebola perception ‘the bigger risk’ to Africa prospects, experts at major economic forum warn).
South Africa, the region’s richest economy is struggling with low business confidence, industrial tensions and infrastructural deficiencies such as in energy, but Nigeria, the continent’s largest economy, has remained resilient despite the Boko Haram terrorist menace and reduced oil output.
A muted recovery is expected for the region in 2015, the data shows. We picked out a few numbers and indicators from the study showing economic trends for the region.
The report notes that the continent’s growth could also be affected if global financing conditions were to tighten faster than anticipated— as the US seeks to normalise its monetary policy by calling time on its expansionist post-crisis regime marked by large scale asset purchases—the so-called Quantitative Easing.
Another risk factor is a slow down in emerging markets such as China, especially for those sub-Saharan Africa countries that depend on either natural resource exports, or private external financing.
The main drivers for African growth this year have been strong public and private investment spending, especially from infrastructure building sprees and investment in the natural resource industry such as oil and gas, and mining.
Rebasing of African economies such as in Ghana, Nigeria and Kenya has also shown more diversification for the region, with industry and services bigger then previously estimated. (See: Why rebasing African economies is clever business and politics)
Capital Markets success
An easing in external financial conditions has also seen some African economies tap capital markets successfully, with a host of successful sovereign bond issues being oversubscribed: Kenya for example saw its $2 billion Eurobond oversubscribed four fold in June, news that filtered through a security crisis at the coastal Mpeketoni, adding to IMF concern that armed conflict has also held back growth.
The report however also noted that general government fiscal balances all around Africa have weakened on the back of rising current expenditures—those not related to projects.
Current account balances across the continent also widened, reflecting the dependence on imports in balance of payments, and currency battles, and looks set to continue at pace for the next few years, a concern to policymakers around the continent.
To further support this, data shows the continent’s terms of trade have also deteriorated, even as the volume of the region’s exports of goods and services grew with the same period:
In conclusion, the report notes that the region has become more sensitive to external shocks due to increased global linkages, and that for the vast majority of sub-Saharan Africa countries, the key concern will remain sustaining high growth so as to add jobs, and reduce inequalities (Read: Malawians are the most entrepreneurial Africans, study finds, but hold your cheers)
Policy makers in pursuit of this should however avoid overreliance on volatile capital flows, and be wary of a permanent widening of the fiscal position, which would disproportionately affect the poor and the vulnerable.