There was “at least a 40% probability” that Africa’s growth could slump to around 2% over the coming 24 months as a result of spillover effects from the current economic problems in Europe and the US, Standard Bank group economist Goolam Ballim warned on Thursday.
Such growth rates would be well below the current expectation of Africa expanding by about 5.5% over the short to medium term, as well as Standard Banks’ own expectation that at least two-thirds of the continent should be able to perform at levels of 4% or better over the period.
However, should there be a “notable relapse” in Europe and the US, Africa’s growth potential would be vulnerable to a “major stutter” over the next 24 months. “While still positive, a 2% fall, would represent a marked loss of momentum,” Ballim cautioned.
But he also stressed that under a “muddle-through” scenario, which would hinge materially on the solutions emerging to deal with the prevailing eurozone crisis, Africa could still hold to growth levels of above 5%.
The bank had also identified five longer-term trends that had the potential to raise future ‘trend’ growth rates for many of Africa’s 57 countries.
African political economy unit senior analyst Simon Freemantle outlined these trends as including the continent’s larger and more affluent population, which was set to expand to 2-billion people by 2050, or one-fifth of world population.
The other key trends highlighted were continuing urbanisation, increasing technology adoption, the latent potential of Africa’s minerals and agricultural resources and the ever-deepening and more innovative financial sector.
However, Ballim warned that, while the secular trends were favourable, there could be a cyclical pullback in the near term.
Africa’s economy, he noted, had liberalised materially over the last decade and had become increasingly aligned to economic developments globally through trade, investment flows and diaspora flows.
“All three elements suggest substantial umbilical chords to global real economy and financial markets – as a consequence, cyclically, Africa’s outlook is sensitive to global developments.”
In other words Africa was not only vulnerable to a pullback in trade and tightening credit, but also to any rise in joblessness and income insecurity for Africans living outside of the continent. This was because 90% of all ‘diaspora flows’, which stood at around $40-billion a year, emanated primarily from Africans working in Europe and the US.
Further, Ballim argued that many countries across Africa were not in as healthy a position to respond to a fall off in growth as was the case during the 2008/9 financial crisis.
“Inflation is not as benign, total indebtedness is slightly more elevated, while the external vulnerability in the form of the current account and exposure to foreign loans is also more elevated. So the capacity to buffer those headwinds is more challenging today than it was at the onset of the first episode of this downturn.”
The bank’s warning came as Standard & Poor’s (S&P’s) revised downward its projections (for the second time in recent weeks) for economic growth in Europe for the coming five quarters and cautioned of a double dip.
The rating agency was now forecasting gross domestic product (GDP) growth in the eurozone at 1.1% in 2012, compared with 1.5% in its earlier projection. For the UK, S&P’s said it expected a GDP growth rate at 1.7% in 2012, slightly below its 1.8% August projection.
"We still don't expect a genuine double dip to occur in the eurozone as a whole or in the UK, but we recognize that the probability of another recession in Western Europe has continued to grow,” chief economist for Europe Jean-Michel Six said in a statement.
“We now estimate the probability of a new recession in Western Europe next year at about 40%, although in our baseline forecast we continue to anticipate sluggish and unevenly distributed growth in the coming five quarters," he added.