Kristalina Georgieva, Director of the International Monetary Fund (IMF), has sounded the alarm to start the new year. “A third of the global economy will be subject to a recession this year,” she stressed, predicting that 2023 will be much more difficult than the year prior.
According to a series of Bretton Woods forecasts, global growth is projected to be around +2.7% this year, compared to +3.2% in 2022, the lowest level since 2001 (excluding the 2008 financial crisis and the Covid pandemic in 2020).
If the United States (+1%), eurozone (+0.5%), and China (+3%), the world’s main economic engines, are subject to economic catastrophe, no one will be spared. Less so the African continent, which continues to foot the bill for the consequences of the Covid-19 pandemic.
Senegal ahead, Rwanda stalled
With a projection of +3.5%, sub-Saharan Africa appears to be doing better than other regions, save for Asia, which is resisting economic troubles with an expected growth of 4.3%, driven by India’s strong showing in recent times (+7%). However, these two regions will not succeed as previously seen, with lower projections for 2023 than 2022.
According to the IMF, 10 African countries must exceed the continental average, with Senegal serving as a particular case topping the ranking with a growth forecast of +8.1% in 2023, thanks to its hydrocarbons sector in partnership with BP.
Niger follows with +7.3%, thanks to the development of agriculture via the country’s new 3N agricultural initiative, public infrastructure investment, and the increase in foreign direct investment.
DRC and Rwanda are tied for third place with forecast growth of +6.5%. Kinshasa’s expected performance comes from mining and logistics advancements in transport infrastructure. Due to exogenous shocks, Kigali’s growth rate is decelerating from 2022’s +7.5% number due to exogenous shocks, moving further away from the 8% growth that it maintained for nearly 20 years.
China’s slowdown: impacts
Besides being Africa’s largest creditor and most important trading partner since 2009, China’s growth deceleration is likely to impact trade relations with Africa. Sino-African trade has already suffered from China’s Zero Covid strategy, further exacerbated by South African floods forcing ports in Durban to shut down 20% of the continent’s goods transit for a few months.
While Africa’s trade with the US is almost six times smaller than trade with China, the Biden Administration has expressed interest in capitalising on China’s recent economic woes in an effort to reposition itself as a leader on the continent. As evidenced by the US-Africa summit held on 13-15 December 2022, the Biden Administration wants to invest $55bn into the continent over the next three years, a well-timed move on the Americans’ part.
The IMF has stated the drop in demand to be the cause for the lack of purchasing power, but prices are expected to stabilise in 2023 at around +4.7%, roughly under half of its current level (but above pre-pandemic levels). This is visible in countries like Zimbabwe, Ghana, and Rwanda, where prices are expected to remain at a high level in 2023.
Oil has fallen, but continues to remain higher than a few months prior, as are commodity prices, which are impacted by droughts, energy shortages, and disruptions in supply chains.
“The debt crisis will widen in emerging economies,” warned the IMF. Costs associated with the Covid-19 pandemic, combined with the ongoing conflict in Ukraine, are placing African public accounts under pressure. Wage pressures in the US could weigh on the expected inflation slowdowns, encouraging the Federal Reserve (FED) to maintain its key rate at a high level.
If the value of the US dollar increases faster than that of the euro, the CFA franc used throughout Africa could depreciate, as was already the case a few months ago. Stay tuned as this develops.
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