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AfricaMoney | August 24, 2017

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EU likely to disappoint while Africa may expect stronger growth: IMF report

EU likely to disappoint while Africa may expect stronger growth: IMF report

The primary takeaways for the island economy, from the latest edition of the International Monetary Fund’s World Economic Outlook, are that Mauritius can expect its Expanded Africa Strategy to pay off, but there is little growth to be expected from its traditional trading partners in the EU. (Image: International Chamber of Commerce)

Mauritius cannot expect much growth from its traditional trading partners in the European Union (EU), while the Expanded Africa strategy of the island economy might be poised to reap rich benefits.

These are the primary takeaways for the island economy, from the latest edition of the International Monetary Fund’s World Economic Outlook, which is released twice annually, in April and October.

Growth in the Eurozone is expected to disappoint, with an average of 0.8% projected in 2014, while stronger growth is expected in Africa, revealed the latest IMF report, released yesterday.

According to the World Economic Outlook (WEO) released in April 2014, the EU was expected to see growth of 1.2% in 2014 and 1.5% for 2015 but this growth estimate has been revised downwards by the October report, which states that growth is now projected at 0.8% for 2014 and 1.3% for 2015.

The report highlights that a gradual but weak recovery is anticipated to take hold in the EU economies, supported by a sharp compression in interests spreads for stressed economies and record-low long-term interest rates in the core EU economies.

Meanwhile, the European Central Bank (ECB) has announced several actions that are urgently needed to tackle low inflation and address fragmentation, such as a reduction in policy rates, targeted credit easing and other measures to boost liquidity.

Growth in emerging market and developing economies had been revised to a lower than expected rate in the April 2014 WEO.

According to the April 2014 WEO, it anticipated that the growth would be 4.9% for 2014 and 5.3% for 2015 whereas in the recent report, it is estimated that growth would likely decline to 4.4% in 2014 and 5.0% in 2015.

“This slowdown is due to lackluster domestic demand and the impact of increasing geopolitical tensions, especially on Russia and neighboring countries” the report highlighted.

However, the African continent has been spared from this gloomy economic outlook, and is expected to witness robust growth prospects.

For instance, Sub-Saharan Africa will see stronger overall growth of 5.8% in 2015 over estimates of 5.5% in 2015 in the April 2014 release, on account of supportive external demand conditions and strong investment demand.

However, estimates for 2014 have been toned down to 5.1% from 5.4% in the April report, on the back of the Ebola disease and the toll it has taken on the West African economies.

The report highlights that the Ebola outbreak is set to have an acute impact on the economies of Guinea, Liberia, and Sierra Leone.

According to the study, activity in Nigeria has been resilient despite poor security conditions and a decline in oil production earlier this year.

In South Africa, 2014 growth is being dragged down to 1.4% by industrial tensions and delays in fixing infrastructure gaps, including electricity constraints. A muted recovery to 2.3% is expected in 2015.

While Sub-Saharan Africa shows robust prospects, recovery in the Middle East and North Africa remains fragile even as growth is expected to start picking up modestly due to improving domestic security conditions and improving external demand.

Overall, the IMF forecasts global growth to remain unchanged from 2013 with an average of 3.3% in 2014 and to rise to 3.8% next year, against 3.6% projected in the April 2014 report for global growth in 2014, and 3.9% in 2015.

According to the Economic Counsellor and head of the IMF’s Research Department, Olivier Blanchard, these worsened prospects are in fact affecting confidence, demand and growth today.

The latter also noted that two factors that are heavily contributing to low potential growth and preventing recovery are: high debt burdens and unemployment.

Blanchard stated that the challenge for both advanced and emerging market economies is to go beyond the general mantra of ‘structural reforms’ and to instead identify which reforms are most needed and politically feasible.

Ultimately, according to him, policymakers need to bring back confidence through clear plans to deal with both the legacies of the crisis and the challenge of low potential growth.

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