Global macroeconomic conditions have become increasingly uncertain with the persistence of multiple shocks that are challenging policy making and investment decisions, said African Development Bank (AfDB) President Dr Akinwumi Adesina said when releasing a new report on Jan. 19.
The new semi-annual publication, Africa’s Macroeconomic Performance and Outlook, will be published in the first and third quarters of each year.
It aims to provide African policymakers, global investors, researchers and other development partners with a timely, evidence-based assessment of the continent’s recent macroeconomic performance and near- to medium-term prospects amid dynamic global economic developments.
The first report showed the extent to which African economies were impacted by multiple factors after recovering from the pandemic in 2021, leading to a slowdown in growth. These factors include the impact of climate change, ongoing Covid-19 risks and the spillover of increasing geopolitical tensions such as conflict and insecurity on the continent and the Russian invasion of Ukraine.
“The highly volatile external environment has spread to the African continent and threatens to halt the gradual recovery from the ongoing impact of the Covid-19 pandemic,” Adesina said during a Jan. 19 briefing.
He highlighted how these issues have led to volatility in global financial markets, inflationary pressures, increased capital and debt servicing costs, disruptions in global supply chains and a fall in demand in key export markets, particularly Europe and China.
Despite these challenges, however, the report indicates that the outlook for African economies remains stable.
A key finding of the report relates to how the tightening of financial conditions and the appreciation of the dollar, common to all emerging economies, have negatively impacted many African economies.
These factors have increased the cost of debt servicing and the risk of a debt crisis, while contributing to limited access to international capital markets for new financing, leading to instability in foreign exchange markets and making it more difficult for central banks to maintain price stability.
Adesina noted that this is particularly problematic as African countries are already straining their fiscal positions due to measures to combat Covid-19 and the need to support vulnerable populations, as well as rising food and energy prices, high debt levels and their impact are confronted with climate change.
AfDB Acting Chief Economist and Vice President Kevin Chika Urama stated that the projected average real gross domestic product (GDP) growth rate for the continent will slow from 4.8% in 2021 to 3.8% in 2022 and then stabilize at around 4% on average in 2023 and 2024. He attributed this slowdown to a combination of domestic and external factors.
Adesina noted that this projected growth was higher than the projected averages of global economic growth of 2.7% in 2023 and 3.2% in 2024.
In southern Africa, growth slowed more than any other region on the continent, falling from 4.3% in 2021 to about 2.5% in 2022. Urama said this was primarily due to a slowdown in economic activity in South Africa caused by factors such as higher interest rates, lack of domestic demand and ongoing power shortages.
In Central Africa, growth was the continent’s fastest at 4.7%, up from 3.6% in 2021. This growth was supported by favorable commodity prices.
Urama explained that tourism-dependent economies across the continent are expected to have grown by 6.3% in 2022, up from 4.2% in 2021, reflecting the reduction in Covid-19 risks and increased savings of the households. However, with rising inflation in these markets, growth is expected to slow to 5.1% in 2023.
Oil-exporting countries, which account for 51% of the continent’s GDP, are expected to have weakened slightly from 4.2% in 2021 to 4% in 2022 due to the slowdown in Libya’s economy and subdued growth in Nigeria. Thanks to improved political stability in Libya and increased oil production in Nigeria, oil-exporting countries’ growth is expected to stabilize at 4.1% in 2023.
Growth in resource-intensive economies is estimated to have slowed to 2.8% in 2022 from 4.7% in 2021, reflecting structural weaknesses, insufficient power generation, high inflation and weak global demand. These economies could see slightly improved growth rates of 3% in 2023.
Growth in non-resource-intensive economies is estimated to have slowed to 4.3% in 2022 from 6.3% in 2021, reflecting the impact of high inflation on private consumption and subdued global export demand. These economies, mostly net oil importers, have also been impacted by high energy and food prices, which likely have dampened household spending.
Adesina said the projected medium-term growth stability in Africa largely reflects the benefits of policy support, global efforts to mitigate the impact of exogenous shocks and rising uncertainty, as well as stable growth in Asia, which is one of Africa’s key trading partners.
“However, this welcome recovery and the economic resilience of African economies come with cautious optimism,” he warned.
Adesina noted that global financial conditions have become more restrictive and are likely to remain so in the near term, due to heightened volatility in global financial markets and ongoing disruptions in global supply chains. This can lead to further exchange rate fluctuations and allow high levels of debt and domestic inflation to persist, potentially affecting food and energy security in many African countries.
“The report calls for bold policy action at national, regional and global levels to help African economies mitigate mounting risks. The African Development Bank reiterates its call for accelerated implementation of structural reforms to boost state-sponsored private sector industrialization in key sectors,” Adesina said.
He stressed that the report outlined policy options to mitigate the impact of tighter global financial conditions and to revive financial flows to Africa.
“It will be crucial to tap the accumulated savings of the private sector – domestically and internationally – and channel them to urgently fund infrastructure and social development,” Adesina said.
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