Sub-Sahara growth may firm to 5% in 2012

ECONOMIC NEWS

Fin24 - Jun 14th 2012, 08:12

Johannesburg – As global demand firms and domestic demand remains robust‚ economic growth in Sub-Saharan Africa is expected to strengthen to 5% in 2012‚ the World Bank says in its newly-released Global Economic Prospects (GEP).
 

It foresees growth of 5.3% in 2013 and 5.2% in 2014.

According to the world body‚ economic growth in the region remained robust in 2011 at 4.7%. Excluding South Africa‚ growth in the rest of the region was stronger at 5.6%‚ making it one of the fastest growing developing regions.

“Higher commodity prices and improved macroeconomic and political stability in recent years has supported increased private investment flows to the region‚ with promising prospects in the medium term.

"As global demand firms and domestic demand remains robust‚ regional growth is expected to strengthen to 5% in 2012‚ 5.3% in 2013 and 5.2% in 2014‚” it concluded.

According to the report‚ developing countries should prepare for a long period of volatility in the global economy by re-emphasising medium-term development strategies‚ while preparing for tougher times.

It notes that a resurgence of tensions in high-income Europe has eroded the gains made during the first four months of this year‚ which saw a rebound in economic activity in both developing and advanced countries and an easing of risk aversion among investors.

Since May 1‚ increased market jitters have spread. Developing and high-income country stock markets have lost some 7%‚ giving up two-thirds of the gains generated over the preceding four months.

Most industrial commodity prices are down‚ with crude and copper prices down by 19 and 14%‚ respectively‚ while developing country currencies have lost value against the US dollar‚ as international capital fled to safe haven assets‚ such as German and US government bonds.

So far‚ conditions in most developing countries have not deteriorated as much as in the fourth quarter of 2011. Outside Europe and Central Asia and the Middle-East and North Africa‚ developing country credit default swap (CDS) rates‚ a key indicator of market sentiment‚ remain well below their maximums from the fall of 2011.

“Global capital market and investor sentiment are likely to remain volatile over the medium term – making economic policy setting difficult.

"In this environment‚ developing countries should focus on productivity-enhancing reforms and infrastructure investment instead of reacting to day-to-day changes in the international environment‚” said Hans Timmer‚ director of Development Prospects at the World Bank.

Increased uncertainty will add to pre-existing headwinds from budget cutting‚ banking-sector deleveraging and developing country capacity constraints.

As a result‚ the World Bank projects that developing country growth will slow to a relatively weak 5.3% in 2012‚ before strengthening somewhat to 5.9% in 2013 and 6.0% in 2014.

Growth in high-income countries will also be weak‚ 1.4‚ 1.9 and 2.3% for 2012‚ 2013 and 2014 respectively – with gross domestic product (GDP) in the euro area declining 0.3% in 2012.

Overall‚ global GDP is projected to rise 2.5‚ 3.0 and 3.31% for the same period.

This baseline scenario remains the most likely outcome. However‚ should the situation in Europe deteriorate sharply no developing region would be spared.

Developing Europe and Central Asia is especially vulnerable because of its close trade and financial ties with high-income Europe‚ but the world's poorest countries will also feel the fallout – especially countries that are heavily reliant on remittances‚ tourism or commodity exports or that have high-levels of short-term debt.

“Where possible‚ developing countries need to move to reduce vulnerabilities by lowering short-term debt levels‚ cutting budget deficits and returning to a more neutral monetary policy stance.

"Doing so will provide them with more leeway to loosen policy‚ should global conditions take a sharp turn for the worse‚” said Andrew Burns‚ Manager of Global Macroeconomics and lead author of the report.