IMF revises growth forecasts upwards, AfDB forecasts recovery but warns of risk

The International Monetary Fund (IMF) has revised upwards its economic growth projections for sub-Saharan Africa and the world economy, compared to its April predictions. The revised World Economic Outlook forecasts growth of 5.0% for sub-Saharan Africa in 2009 and 5.9% for 2010, the former up 0.3% on its April prediction, the latter unchanged. World economic growth is now forecast at 4.6% (up 0.4% on the April forecast) for 2010 and 4.3% next year (unchanged).
The new figures were released on 8 July, but based on data collected until 21 June, before markets crashed on fears of a “double dip” recession. The commentary on the IMF website warns: “Nevertheless, recent turbulence in financial markets—reflecting a drop in confidence about fiscal sustainability, policy responses, and future growth prospects—has cast a cloud over the outlook. Crucially, fiscal sustainability issues in advanced economies came to the fore during May, fuelled by initial concerns over fiscal positions and competitiveness in Greece and other vulnerable euro area economies. At the same time, downside risks have risen sharply.. In this context, the new forecasts hinge on implementation of policies to rebuild confidence and stability, particularly in the euro area.”
Growth forecasts for the Middle East and North Africa are virtually unchanged at 4.5% (2010) and 4.9% (2011). Africa still lags behind other key economies, such as China (forecasts of 10.6% and 9.5%) and India (9.4% and 8.4%) but is close to Brazil (7.1% and 4.2%) and ahead of Russia (4.3% and 4.1%).
Projections for South Africa are also being revised up, according to a report in Business Day newspaper (www.businessday.co.za). On 8 July the IMF said SA’s economic growth was likely to reach 3.2% this year, up from an estimate of 2.6% published in April, according to Alfredo Cuevas, the IMF’s senior resident representative in SA. “The recovery in SA has been stronger than expected, and we don’t see ourselves making major revisions to the forecast at this point,” he told the newspaper.
The paper cites Finance Minister Pravin Gordhan as stating on 8 July that growth in the first quarter was 4.6%, up from 3.2% in the fourth quarter of last year. “We have seen a gradual improvement in economic conditions. The pace of growth probably moderated somewhat in the second quarter.” He said that SA was on target to beat the forecast of its Treasury Department, which had forecast 2.3% forecast, after contracting 1.8% in 2009.
Mr Cuevas said that although the European slowdown “weighed” on SA, the effect was less than the good news seen in the past few months, including the effects of the World Cup, which should contribute half a percentage point to overall growth: “It has been a much bigger success than people abroad have expected … SA has been seen in a very positive light as a result of the smooth running of the World Cup.”
The IMF raised its US growth forecasts a little to 3.3% and 2.9% for 2011, but warned unemployment would remain above 9% for both years. It warned that unemployment, a large backlog of home foreclosures and high levels of negative home equity, posed risks of a “double dip” in the US housing market.
According to the IMF statement: “The world economy expanded at an annualized rate of over 5% during the first quarter of 2010. This was better than expected in the April 2010 WEO, mostly due to robust growth in Asia. More broadly, there were encouraging signs of growth in private demand. Global indicators of real economic activity were strong through April and stabilized at a high level in May. Industrial production and trade posted double-digit growth, consumer confidence continued to improve, and employment growth resumed in advanced economies”.
The laggard remains the euro area where overall growth is forecast at 1.0% in 2010 (unchanged) and 1.3% in 2011 (revised down 0.2 percentage points). UK growth is revised downwards to 1.2% (down 0.1 percentage points) and 2.1% (down 0.4 percentage points). Japan is set to grow by 2.4% (up 0.5 percentage points) and then 1.8% 9down 0.2 percentage points).
African Development Bank says the continent is making a “spectacular” recovery from the global recession. Chief economist Mthuli Ncube was reported on 6 July as predicting growth for Africa of 4.5% this year and over 5% next year. It is then expected to return to the average of about 6% percent it enjoyed between 2006 and 2008. Growth was just 2.5% in 2009 (the IMF had 2.2% for sub-Saharan Africa for 2009).
Ncube is reported to link Africa’s recovery to trade with China and decades of market reform. He is reported on Reuters as warning the recovery could be threatened if Europe — to which many African economies are closely connected — fails to bounce back and a slowdown in Europe could see the AfDB trim Africa’s 2010 growth forecast by between 0.5 and 0.8 percentage points. “We think there’s a 50-50 chance that a major slowdown, a double-dip recession (in Europe), will become a reality.” Other threats include the possibility of political or social tension and problems associated with poor infrastructure.
Reduced trade would have the main impact from Europe on Africa, Ncube said, although tightening of credit lines by European banks was also likely to hit growth — as it did in late 2008 when the financial crisis struck. He also pointed to a likely reduction in aid from European governments such as Germany, Britain, Denmark and the Netherlands, where political opposition to domestic austerity measures is bound to grow. “We think that there will be about a 10% reduction in aid”.

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