Summery
The global recovery remains slow-paced amid a sharp drop in oil prices, divergent monetary policy in advanced economies, and varying economic performance across countries.
Sub-Saharan Africa’s growth is projected to slow in 2015 to 4 percent, before picking up moderately in 2016. Slower expansion of economic activity largely reflects the region’s vulnerability to falling commodity prices, since it is a net exporter of oil and other commodities.
The initial terms-of-trade deterioration is estimated at 18.3 percent for the region, with declines of about 40 percent for oil-exporting countries. The drop in terms-of-trade is 0.6 percent for countries exporting agricultural goods, while exporters of metals and minerals show a modest gain of 1.2 percent. Fourteen African countries are more vulnerable, that is with terms-of-trade decline greater than 10 percent, to the slide in commodity prices; 22 countries are less vulnerable, that is, with a negative movement in the terms of trade of less than 10 percent; and 12 countries are more resilient.
Lower commodity prices will weigh heavily on exporters of these commodities, putting pressure on current account and fiscal balances. Countries that stand to lose the most are the less diversified oil exporters, such as Angola and the Republic of Congo. Other commodity exporters, such as the Democratic Republic of Congo and Mauritania, are also being negatively affected by lower prices for their main traded commodity. By contrast, net oil importers, such as Kenya and Senegal, are set to see modest gains from cheaper energy prices.
Monetary and fiscal policy responses will affect macroeconomic outcomes, but policy adjustment to the adverse terms-of-trade shock will be especially challenging in countries with depleted policy buffers. Overall, countries that are more vulnerable to the decline in commodity prices have weaker quality of policies and institutions as measured by the World Bank’s Country Policy and Institutional Assessment indicators.
Risks to the economic outlook are tilted to the downside. On the domestic front, a new generation of violent conflict poses security risks with the potential to undermine development gains; and the Ebola epidemic serves to highlight the preexisting weaknesses in the health systems of much of the continent and the potential for systemic risks from communicable diseases. On the external front, a sharper-than-expected slowdown in China, a further decline in oil prices, and a sudden deterioration in global liquidity conditions are the main risks.
Read the full report : AFRICA’S PULSE- An analysis of issues shaping Africa’s economic future
Source: WBG
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