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Subdued growth for sub-Sahara Africa in 2017 - IMF, World Bank

Apr 21 2017 18:47

Cape Town – Both the World Bank and the International Monetary Fund (IMF) cautioned that the growth outlook for sub-Saharan countries are subdued, as GDP growth only marginally surpasses population growth and a heavy debt burden weighs these countries down, said Imgard Erasmus, analyst at NKC African Economics in a research note. 

Specifically, commodity exporters have not fully adjusted to structurally-lower commodity-related revenues, while poorly constructed policies stifle economic recovery. 

READ: Low growth, politics pose risk to sub-Saharan countries - Moody's

In its April 2017 World Economic Outlook (WEO), the IMF forecasts that growth in sub-Saharan countries will be 2.6% in 2017, compared to 1.4% in 2016. 

This is on the back of a modest recovery in international commodity prices, an improvement in the global trade outlook, the gradual stabilisation of macroeconomic conditions in countries that endured shocks to the terms of trade, better mining production and improved agricultural output as the drought starts subsiding, Erasmus says. 

The World Bank’s expectation for growth in sub-Saharan Africa is on par with the IMF at 2.6%. 

NKC however projects that growth in sub-Saharan Africa will be 2.7% in 2017 before quickening to 3.5% in 2018 and breaking through the 4%-threshold by 2019. 

The recovery, Erasmus said, can be attributed to the narrowing of the transport and power infrastructural gap, and improved outlook for global trade, external demand and commodity prices, as well as improved growth in private sector investment.

READ: Downgrades could impact infrastructure development 

The IMF cut South Africa’s growth prospects to 0.8%, while the World Bank expects the country to grow only 0.6% in 2017. 

South Africa, along with Kenya and Nigeria, was singled out by the World Bank as one of the countries with a deterioration in security risk and political uncertainty. 

Analysts have warned that South Africa could enter a period of prolonged slow economic growth, following recent events, such as a far-reaching Cabinet reshuffle in which finance minister Pravin Gordhan and his deputy Mcebisi Jonas were dismissed. As a result, South Africa’s sovereign credit rating was downgraded to junk status by S&P Global Ratings and Fitch in a matter of one week. 

In addition, the World Bank cautions that volatile global risk sentiment and a normalisation in US interest rate policy may result in increased borrowing costs for African countries.

READ: Yellen sees more rate hikes needed if US economy stays on course

The IMF in its report names a number of fundamentals that emerging market and developing economies should have in place to improve growth outcomes, such as having a prudent fiscal policy (limiting the level of debt to GDP) and protecting property rights. It warns that the external environment has been getting more complicated for emerging markets and developing economies over the past few years. 

“Some of the exceptionally favourable conditions that emerging market and developing economies enjoyed over long stretches during the 2000s are not likely to return soon. Waning potential output growth in advanced economies will lead to weaker demand growth for emerging market and developing economies,” the IMF said in its report.

However, it also points out that emerging market economies with “relatively stronger fundamentals” may benefit from capital inflows from investors who discriminate across these economies, based on sound fundamentals. 

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