IMF joins World Bank in revising down Africa 2015 growth, blames falling commodity prices and China's cooling

But lender sees a rebound for the continent's economy in 2016.

ECONOMIC growth in sub-Saharan Africa remains strong but is expected to slow for a second successive year in 2015 in the face of declining commodity prices and the Ebola epidemic, the International Monetary Fund said Tuesday.

Overall, growth is projected to fall to 4.5%—a substantial downward revision of 1.25 percentage points since the IMF’s previous forecast in October 2014—before rebounding to 5.1% in 2016.

The continent’s economies also face risks from low growth in major trading partners, a sharper-than-expected tightening of global financing conditions and mounting domestic security threats, the IMF said in its World Economic Outlook.

Oil exporters such as Nigeria, the continent’s biggest economy, will be faced with a formidable challenge to cope with a “significant adverse shock” from falling oil prices, and their growth in 2015 has been marked down by almost 2.5 percentage points.

But the cheaper fuel is a favourable development for the rest of the region, though curtailed by the low commodity prices, with growth in the region’s oil importers expected to average 4.75%.

In 2014, growth for the region as a whole remained solid at 5.0%—down from the 5.2% recorded in 2013.

South Africa, the continent’s most advanced economy, saw growth fall from 2.2% in 2013 to 1.5 % in 2014, “on account of mining strikes and electricity supply constraints”, the IMF said.

This year, the country’s growth is expected to rise to 2.0%—a 0.3 percentage point revision downward—and 2.1% in 2016.

“Elsewhere in the region, growth, driven by strong investment in mining and infrastructure and by private consumption, held up well, especially in the region’s low-income countries.

“Exceptions were Guinea, Liberia, and Sierra Leone, where growth declined sharply as a result of the Ebola epidemic, which caused severe disruptions in agriculture and services and the postponement of mining development projects,” the IMF said.

Further weakening of growth in Europe or in emerging markets, in particular in China, could reduce demand for exports, further depress commodity prices, and curtail foreign direct investment in mining and infrastructure.

Policy failures
The IMF warned that failure to implement appropriate policies, especially where large fiscal adjustments are needed, could also weaken macroeconomic stability.

Fiscal and current account balances worsened significantly in the region’s oil-exporting countries, reflecting ambitious infrastructure investment agendas financed with shrinking oil revenues.

Fiscal balances also deteriorated in other parts of the region, including the Ebola-affected countries, while consolidation efforts led to improvements in Ghana and Zambia.

Weak oil and food prices have helped reinforce the region’s generally low-inflation environment, which could allow countries dealing with lower growth to adopt more accommodative monetary policy stances, the IMF said.

Favourable global financing conditions for most of the year encouraged a surge in sovereign bond issuance from $6.5 billion in 2013 to $8.7 billion in 2014, with maiden issuances by Cote d’Ivoire, Ethiopia, and Kenya.

Trending up
However, financing conditions have tightened considerably since December, and yields on the region’s bonds have been trending up, especially in Ghana—because of a high fiscal deficit—and Gabon and Nigeria owing to lower oil prices.

The IMF cautions that the outlook for the region is subject to significant risks, including the Ebola epidemic, rising security concerns, and political uncertainty ahead of key elections.

Recent episodes of volatility suggest that frontier market economies and oil exporters planning to cover their financing needs through international markets could be vulnerable to a reversal in investor sentiment, especially in a tighter US monetary policy environment.

The World Bank has presented even lower figures for sub-Saharan Africa’s growth, predicting it will slow in 2015 to 4.0 % from 4.5% in 2014.

The downturn largely reflects the fall in the prices of oil and other commodities, the bank said Monday in Africa’s Pulse, a twice-yearly analysis of the region. (AFP)

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