APA-Dakar (Senegal) The African Development Bank (AfDB) is now forecasting a 3.4 percent and 3 percent growths in 2023 and 2024 respectively, compared with 4.0 percent and 4.3 percent previously.
By Ibrahima Dione
Against a backdrop of global shocks, the economies of the continent are being impacted.
This is why the African Development Bank (ADB) has revised its macroeconomic forecasts for the year ending and the incoming one: 3.4 percent instead of 4.0 percent in 2023 and 3.8 instead of 4.3 percent in 2024.
“These slightly lower forecasts are explained by the persistent and long-term effects of the Covid-19 pandemic, geopolitical tensions and conflicts, climate shocks, a global economic slowdown, as well as the limited fiscal room for manoeuvre available to African governments to respond adequately to shocks and sustain the gains of economic recovery from the health crisis,” the financial institution argued.
The new data, the AfDB said in a statement to APA, were published in the updated as “African Macroeconomic Performance and Prospects 2023” (AMP) report, which follows on from the “African Economic Outlook 2023” report released last May.
“The challenging global economic environment and multiple shocks continue to shape Africa’s macroeconomic performance. Persistent inflationary pressures threaten to wipe out any macroeconomic gains made since the pandemic risks were mitigated, while the continued depreciation of national currencies in many countries has exacerbated debt servicing costs,” said Kevin Urama, Chief Economist and Group Vice President of the African Development Bank.
But in the face of regional and global shocks, the continental financial institution “remains committed to helping African countries better address these challenges and get economic growth back on track,” assured Mr. Urama.
In the short term, the MOE update urges African countries to continue implementing restrictive monetary policies to contain inflation. This should be supported by fiscal policies that promote economic diversification and remove supply-side constraints.
The new medium-to-long-term benchmark calls on governments to step up effective investment in human capital and physical infrastructure to boost productivity, boost economic growth and create opportunities for more inclusive and sustainable development.
Inflationary pressures
While inflationary pressures are easing worldwide, the ADB has noted, they persist in Africa and continue to weigh heavily on the short- and medium-term economic performance of the continent’s countries. Inflation in Africa is expected to average 18.5 percent this year and 17.1 percent in 2024. According to the revised MOE, this represents an acceleration of 3.4 and 7.6 percentage points, respectively, compared with previous projections.
“Persistent inflationary pressures have been largely driven by supply disruptions in the agricultural sector, higher import inflation due to weakening local currencies, relatively high commodity prices and the persistence of fiscal dominance in several African countries,” the release noted.
This increase in cost-of-living pressures has eroded the purchasing power of Africans, fuelling the risk of further rises in the incidence of poverty.
In addition, the report noted that slow global economic growth is affecting demand for African exports. A trend that is likely to continue for much longer. The expected economic slowdown in advanced economies and sluggish growth in China, compared to historical trends have weighed on global growth.
“This has put additional pressure on African countries, particularly those dependent on the Chinese market for their raw material exports. Stronger policy support in China could boost the global economic recovery and trigger positive spillover effects on African countries for which China remains a major trading partner. These factors can help mitigate the adverse risks to the economic outlook,” the AfDB added.
According to the “Africa’s Macroeconomic Performance and Prospects 2023” update, climate shocks, combined with worsening geopolitical tensions in the Middle East and Russia’s protracted war in Ukraine, could lead to greater disruptions in global trade and foreign investment flows. A prospect that could trigger a new round of prolonged tightening of global financial conditions and, in turn, put further pressure on the depreciation of national currencies, increase debt servicing costs and exacerbate the continent’s financing shortages.
Staying afloat in spite of everything
To achieve this, the African Development Bank has asserted that “coordinated monetary and fiscal policies, underpinned by a reduction in fiscal dominance, will be essential to rebuild shock absorbers.”
The financial institution also considered that targeted and sequenced investments to address supply constraints, notably by addressing structural weaknesses, would help reverse the slowdown in economic recovery momentum and place African economies on a higher, sustainable growth trajectory.
His report urged African countries, “in order to reduce inflationary pressures on a sustainable basis, to remove the obstacles that prevent domestic supply from responding to rising international commodity prices, and to boost labor productivity through targeted investments in infrastructure and human capital,” but also calls for “tackling the obstacles that stand in the way of increased domestic resource mobilization to address the current financing shortage.”
Launched in January 2023, the report on “Africa’s Macroeconomic Performance and Outlook” complements the AfDB’s annual “African Economic Outlook” report, which focuses on key emerging policy issues relevant to the continent’s development.
The MOE is published in the first and third quarters of each year.
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