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AfricaMoney | August 23, 2017

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IMF cuts global growth forecast; Sub-Saharan Africa growth slashed to 4.9%

IMF cuts global growth forecast; Sub-Saharan Africa growth slashed to 4.9%

The revisions reflect a reassessment of prospects in China, Russia, the euro area, and Japan as well as weaker activity in some major oil exporters because of the sharp drop in oil prices. (Image:

The International Monetary Fund (IMF) has reviewed its forecast for global economic growth for 2015 downward from 3.8% to 3.5% and that for 2016 to 3.7%, where United States is the only major economy for which growth projections have been raised.

Also, IMF revised its growth forecast for sub-Saharan Africa down to 4.9% from 5.8% in 2015 (5.2% from 6% in 2016). The lower oil prices and commodity prices were reasons given for the further lowering of growth projections.

Importantly, South Africa’s growth has been reduced to 2.1% from a previous 2.3% in 2015 and reduced from 2.8% to 2.5% in 2016.

Following this revision, relative to the October 2014 World Economic Outlook (WEO), on Tuesday, January 20, 2015, the IMF has called for governments and central banks to pursue accommodative monetary policies and structural reforms to support growth.

“We expect the decrease in prices to be quite persistent,” the IMF’s Chief Economist, Olivier Blanchard, said to reporters at a news conference at the launch of the report.

“We expect some return, some increase, but surely not an increase back to levels where we were, say, six months ago,” he also said.

The revisions reflect a reassessment of prospects in China, Russia, the euro area, and Japan as well as weaker activity in some major oil exporters because of the sharp drop in oil prices, where the main upside risk is a greater boost from lower oil prices, although there is uncertainty about the persistence of the oil supply shock.

“New factors supporting growth, lower oil prices, but also depreciation of euro and yen, are more than offset by persistent negative forces, including the lingering legacies of the crisis and lower potential growth in many countries,” Olivier Blanchard said in a statement.

Downside risks relate to shifts in sentiment and volatility in global financial markets, especially in emerging market economies, where lower oil prices have introduced external and balance sheet vulnerabilities in oil exporters.

Furthermore, in many emerging and developing commodity exporters, the projected return in growth is weaker or delayed compared with the October 2014 projections, as the impact of lower oil and other commodity prices on the terms of trade and real incomes is now projected to take a heavier toll on medium-term growth.

Developments since the release of the October WEO have conflicting implications for the growth forecasts.

On the upside, the decline in oil prices driven by supply factors, which, as noted, are expected to reverse only gradually and partially, will boost global growth over the next two years or so by lifting purchasing power and private demand in oil importers.

The impact is forecast to be stronger in advanced economy oil importers, where the pass-through to end-user prices is expected to be higher than in emerging market and developing oil importers.

However, the boost from lower oil prices is expected to be more than offset by an adjustment to lower medium-term growth in most major economies other than the United States.

Furthermore, lower oil prices also offer an opportunity to reform energy subsidies and taxes in both oil exporters and importers.

In oil importers, the saving from the removal of general energy subsidies should be used toward more targeted transfers, to lower budget deficits where relevant, and to increase public infrastructure if conditions are right.

Finally, the IMF advised advanced economies to maintain accommodative monetary policies to avoid increasing real interest rates as cheaper oil heightens the risk of deflation.

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