IMF slashes sub-Saharan Africa growth outlook on commodities slump, weak China demand, financial market volatility

By bne IntelliNews October 6, 2015

The International Monetary Fund (IMF) lowered sharply its growth outlook for sub-Saharan Africa due to the steep decline in global oil and other commodity prices, which hurt exporters, coupled with lower demand from China, the region’s largest single export market, and the tightening of global financial conditions for frontier market economies. Electricity supply constraints across the region, including in key markets such as South Africa, Ghana and Nigeria, place additional strain on the troubled economies.

In its World Economic Outlook (WEO), released on October 5, the fund projects the region’s growth to slow from 5% last year to 3.8% this year, before strengthening to 4.3% next year on the back of a moderate pickup in external demand, a modest recovery in oil prices, and an improvement in the outlook for Ebola-affected countries. In July, it forecast growth of 4.4% this year and 5.1% next year, down from 4.9% and 5.2%, respectively, projected in January.

IMF’s projection echoes that of the World Bank, released a day earlier, which forecast growth in the region at 3.7% this year and 4.4% next year.

Sub-Saharan Africa’s largest economy, Nigeria, has been severely affected by the oil price slump, as it relies on the oil and gas industry for nearly 90% of export income and more than 70% of overall government revenue. Africa’s largest oil producer has been severely hit by the weak oil prices that trimmed budget revenues and foreign exchange earnings, leading to a record low GDP growth of 2.4% y/y in the second quarter. The IMF’s full-year forecast was cut to 4.0% from 4.5% for 2015 and to 4.3% from 5.1% for 2016. Last year, the country’s economy expanded by 6.3%.

The oil price slump will also have a severe impact on sub-Saharan Africa’s second biggest oil producer, Angola, where growth is projected to slow from 4.8% in 2014 to 3.5% in both 2015 and 2016.

The continent’s best developed economy, South Africa, also saw a substantial downward revision – the IMF now expects growth to ease from 1.5% last year to 1.4% this year and further to 1.3% next year, “reflecting electricity-load shedding and other supply bottlenecks”, versus 2.0% and 2.1%, respectively, projected in July. The South African Reserve Bank (SARB) slashed last month its GDP growth outlook to 1.5% from 2.0% for 2015 and to 1.6% from 2.1% for 2016 following the surprise 1.3% q/q contraction in the second quarter, saying that growth will remain constrained by global developments and associated uncertainty and volatility, low business and consumer confidence and electricity supply shortages.

In Ghana, power shortages and fiscal consolidation are weighing on activity, which is projected to slow from 4.0% in 2014 to 3.5% in 2015 before recovering to 5.7% in 2016.

Among the region’s oil importers, projected to grow at 4% on average, a majority will continue to experience solid growth, especially low-income countries, where investment in infrastructure continues and private consumption remains strong, the IMF said. It noted that Ivory Coast, the Democratic Republic of the Congo (DRC), Ethiopia, Mozambique, and Tanzania are set to outperform with growth rates of about 7% or more this year and next. On the negative side, countries like Sierra Leone and Zambia, which have been hit by lower prices for their main export commodity, will underperform even as lower oil prices relieve their energy import bill.

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