IMF Survey: Sub-Saharan Africa Maintains Growth in an Uncertain World

IMF News, October 12, 2012

Source details

Canonical URL: IMF Survey: Sub-Saharan Africa Maintains Growth in an Uncertain World

Regional output is projected to expand by about 5¼ percent in 2012 and 2013, a similar pace to that observed in 2010–11.
Sub-Saharan Africa remains relatively insulated from negative factors pulling down growth in advanced countries, but countries with closer trade links to Europe are experiencing some softening in exports.
Growth has softened in middle-income countries that more closely track the global economy; South Africa is cited where exports have slowed and business confidence has fallen.
Most low-income countries have been enjoying solid expansion, with new resource projects (for example, oil in Niger and iron ore in Sierra Leone) providing additional impetus.
Domestic demand, supported by public and private investment and generally prudent policies, has helped sustain economic activity across the region.

Inflation in sub-Saharan Africa has been slowing in 2012, reflecting the reversal of the 2010–11 spike in global food and fuel prices and monetary tightening, especially in East Africa.
Inflation is anticipated to reach some 8 percent by end-2012 and about 7 percent in 2013.
The recent surge in world prices of cereals is reflected in the inflation forecasts; further increases would present new risks and exacerbate food security concerns in areas experiencing poor rainfall.
Governments in countries facing food security problems are working on response measures with support from the United Nations World Food Program, the World Bank, and other development partners.

Downside risks to the regional growth outlook have increased; proximate risks include intensification of stresses in the eurozone and a sharp fiscal tightening in the United States.
An adverse scenario in the October 2012 World Economic Outlook—sustained slowdown in global growth of about 2 percentage points of GDP—would likely reduce the regional growth rate by about 1 percent a year.
The impact of a global slowdown would be more severe in countries with undiversified exports and low policy buffers.
Depending on the characteristics of a global slowdown, some countries could experience more severe disruptions because of exposures to specific export markets, commodity prices, or sources of remittances and foreign investment.

Many countries remain slow in rebuilding fiscal positions after the deficits necessitated by the Great Recession, leaving more limited policy space now than in 2009 to offset a new global downturn.
If the recovery holds, rebuilding of buffers is likely to continue in a significant number of countries, albeit slowly.
Policy recommendations:
- Make further efforts to rebuild policy buffers where growth remains robust, while preserving continuity in multi-year projects.
- In the event of a downturn, avoid procyclical fiscal contraction.
- Manage downturns with a mix of fiscal, monetary, and exchange rate measures, with the appropriate mix dependent on exchange rate arrangements, the ability to finance wider deficits domestically, and the inflation situation.
- Recognize that some countries might require assistance from development partners, including international financial institutions.

Study 1: Examines potential economic spillovers between Nigeria and South Africa and the rest of the region; identifies important trade, investment, and financial linkages between South Africa and other countries, especially members of the Southern African Development Community and the South African Customs Union.
Study 1: Notes Nigeria is an important export market for only a few close neighbors; formal and informal trade transmit price and policy shocks across borders, while financial linkages are growing as Nigeria-based banks expand regionally.
Study 2: Analyzes structural transformation (shift of workers from low to high average productivity activities and sectors) over the last 15 years, finding most countries experienced some degree of structural transformation at different speeds and along different paths.
Structural transformation pathways vary by resource endowments, labor skills, and logistical and infrastructural features: some countries may follow low-wage manufacturing (Asian-style), others may transform through services, and still others through productivity gains in agriculture.

IMF Survey: Sub-Saharan Africa Maintains Growth in an Uncertain World — By Juan Trevino, IMF African Department, October 12, 2012