- AFDB has revised its short to medium-term macroeconomic forecast for Africa, for 2023 and 2024 downwards to 3.4% and 3.8%, from 4.0% and 4.3%.
- The bank cites the effects of COVID-19, geopolitical conflicts, climate shocks, a global economic slowdown, and limited fiscal space as constraints to Africa’s recovery.
- AfDB is calling on governments to scale up investment in human capital and infrastructure to boost productivity, and regain momentum in economic growth.
Global shocks have prompted the African Development Bank (AfDB) to revise its short to medium-term macroeconomic projections for Africa in 2023 and 2024, reducing the forecast to 3.4 per cent and 3.8 per cent from the earlier estimates of 4 per cent and 4.3 per cent.
AfDB cited persistent global shocks impacting African economies in the period under focus. The bank said the enduring impacts of COVID-19, ongoing geopolitical tensions and conflicts, climate-related shocks, a worldwide economic deceleration, and the constrained fiscal capacity of African governments to effectively address shocks and maintain the gains of post-pandemic economic recovery are set to constrain growth.
The bank’s projections come barely a month after the International Monetary Fund (IMF) released an update in October noting that growth in Sub-Saharan Africa will average 4 per cent in 2024. In its forecast, the IMF said rising cost of debt repayments across Africa in the wake of weakening currencies in key economies will exert significant pressure on countries.
Both AfDB and IMF cite persistent global shocks facing Africa in 2024
“Inflation is still too high with one-third of countries having double-digit inflation. Policymakers in the region face some of the most daunting policy challenges in the world,” noted Abebe Aemro Selassie, the Director of the IMF African Department in a briefing.
Selassie added that policymakers in the African region confront some of the most formidable policy challenges globally. Balancing the imperative to sustain macroeconomic stability within resource constraints and ongoing development needs becomes even more critical in the face of frequent shocks and fragility, he explained.
The AfDB’s updated data were published on Thursday, 29 November, in the 2023 Africa’s Macroeconomic Performance and Outlook (MEO) update, a follow-up to the Group’s 2023 Africa Economic Outlook that was released in May.
While inflationary pressures are receding globally, AfDB notes that they are persistent in African economies and continue to weigh heavily on the continent’s short-to-medium-term economic performance. Africa’s inflation is now projected to average 18.5 per cent and 17.1 per cent in 2023 and 2024, respectively.
AfDB’s Chief Economist and Vice President, Prof. Kevin Urama said: “The challenging global economic environment and multiple shocks continue to shape Africa’s macroeconomic performance. The entrenched inflationary pressures threaten to reverse all the macroeconomic gains made since the easing of pandemic risks while the continued depreciation of domestic currencies in many countries has exacerbated debt service costs.”
“In the face of regional and global shocks, the Bank remains resolute in supporting African countries to better navigate these challenges and put economic growth back on track,” he added.
In the short term, the MEO update urges countries to continue to implement restrictive monetary policies to contain inflation. This should be supported by fiscal policies that promote economic diversification and remove supply-side constraints.
Over the medium- to long-term, it calls on governments to scale up efficient investment in human capital and physical infrastructure to boost productivity, regain momentum in economic growth, and create opportunities for more inclusive and sustainable development.
The revised inflation rates represent an acceleration of 3.4 and 7.6 percentage points, respectively, from the earlier projection. Ongoing inflationary pressure has largely been fuelled by supply shocks in agriculture, stronger imported inflation due to weaker local currencies, relatively high commodity prices, and the persistence of fiscal dominance in several African countries.
High inflation eroding purchasing power of Africans
Rising cost-of-living pressures have diminished the purchasing power of Africans, heightening the potential for increased poverty rates. Noteworthy findings from the update include the impact of sluggish global economic growth on the demand for Africa’s exports, a trend expected to endure longer than initially foreseen.
The report underscores the significance of the projected economic deceleration in advanced economies and the lackluster growth in China compared to historical patterns, both contributing to the overall drag on global growth.
“This has placed additional strain on African countries, especially those dependent on the Chinese market for commodity exports. Stronger policy support in China could bolster global economic recovery and trigger positive spillovers to African countries for which China remains a major trading partner. These factors can help moderate adverse risks to the economic outlook,” the report notes.
However, the 2023 MEO update notes that adverse factors such as climate shocks, escalating geopolitical tensions in the Middle East, and the protraction of Russia’s invasion of Ukraine may intensify disruptions in global trade and foreign investment flows.
This could potentially initiate another phase of prolonged tightening in global financial conditions, exerting additional depreciation pressure on domestic currencies. Furthermore, it may escalate debt-service costs, compounding the continent’s funding constraints.
Staying afloat amid local and global shocks
The MEO update highlights the importance of synchronized monetary and fiscal policies, coupled with a reduction in fiscal dominance, to rebuild defenses against shocks.
Strategic and phased investments aimed at alleviating supply constraints, including the resolution of structural weaknesses, are recommended to reverse the decline in economic recovery momentum and propel African economies toward a more robust and sustainable growth path.
In order to durably alleviate inflationary pressures, the report advises African countries to eliminate hindrances that impede domestic supply from adjusting to increased international commodity prices. Additionally, it emphasizes the need to enhance labor productivity through targeted investments in infrastructure and human capital.
Addressing obstacles to enhancing domestic resource mobilization is crucial in alleviating the current funding constraints.
Introduced in January 2023, the Africa Macroeconomic Performance and Outlook (MEO) report complements the African Development Bank’s annual African Economic Outlook report. The MEO specifically addresses critical emerging policy issues pertinent to the continent’s development.
Published in the first and fourth quarters each year, the update precedes the 2024 edition of the MEO, providing insights into the evolution of macroeconomic conditions amidst numerous and unprecedented shocks.