IMF projects growth for Ghana, Africa

The International Monetary Fund’s World Economic Outlook has projected growth for Ghana and other sub-Saharan African countries. The latest outlook has also upgraded its global growth projections to 3...

The International Monetary Fund’s World Economic Outlook has projected growth for Ghana and other sub-Saharan African countries.

The latest outlook has also upgraded its global growth projections to 3.6 percent for this year, 2017, and 3.7 percent for next year.

In both cases, this is 0.1 percentage points above our previous forecasts and well above 2016’s global growth rate of 3.2 percent, which was the lowest since the global financial crisis, the IMF said.

“For 2017, most of our upgrade owes to brighter prospects for the advanced economies, whereas for 2018’s positive revision, emerging market and developing economies play a relatively bigger role.

“Notably, we expect Sub-Saharan Africa, where growth and per capita incomes have on average stalled for the past two years, to improve overall in 2018,” it said.

The IMF noted that the current global acceleration is also notable because it is so broad-based, more so than at any time since the start of the decade. “This breadth offers a global environment of opportunity for ambitious policies that will support growth and raise economic resilience in the future. Policymakers should seize the moment. The recovery is still incomplete in important respects, and the window for action that the current cyclical upswing offers will not be open forever.”

“Why do we say that the recovery is incomplete? It is incomplete in our view in three important ways:

“First, the recovery is incomplete within countries. Even as output nears potential in advanced economies, nominal and real wage growth have remained low. This wage sluggishness follows many years during which median real incomes grew much more slowly than incomes at the top, or even stagnated. Drivers of growth including technological advances and trade have had uneven effects, lifting some up but leaving others behind in the face of structural transformation. The resulting higher income and wealth inequalities have helped fuel political disenchantment and skepticism about the gains from globalization, putting recovery at risk.

“Second, the recovery is incomplete across countries. While most of the world is sharing in the current upswing, emerging market and low-income commodity exporters, especially energy exporters, continue to face challenges, as do several countries experiencing civil or political unrest, mostly in the Middle East, North and Sub-Saharan Africa, and Latin America. Many small states have been struggling. About a quarter of all countries and nearly a third of emerging market and developing economies saw negative per capita income growth in 2016. Despite the current upswing, nearly a fifth of all countries and nearly a fourth of emerging market and developing economies are projected to do the same in 2017.

“Finally, the recovery is incomplete over time. The cyclical upswing masks much more subdued, longer-term trends of productivity and demographics, even correcting for the arithmetical effect of more slowly growing populations. For advanced economies, per capita output growth is now projected to average only 1.4 percent per year over the 2017-2022 period, compared with 2.2 percent per year during the pre-crisis decade, 1996-2005. Moreover, we project that fully 43 emerging market and developing economies will grow even less in per capita terms than the advanced economies over the coming five years. These economies are diverging rather than converging, going against the more benign trend of declining inequality between countries due to rapid growth and dynamic emerging economies like China and India.

“These gaps in the recovery challenge policymakers to action, action that should take place now while times are good. Success requires a three-pronged approach in the context of competing and refining the important financial stability reforms undertaken since the global crisis without weakening them.

“Needed structural reforms differ across countries, but all have ample room for measures that raise economic resilience along with potential output. Our research has shown that structural reforms are easier to implement when the economy is strong.

“For some countries that have returned close to full employment, the time has come to think about gradual fiscal consolidation to reduce swollen public debt levels and build buffers against the next recession. Higher infrastructure and educational spending, which are needed in some countries that do have fiscal space, can have the added benefit of boosting global demand just as consolidation measures elsewhere subtract from it. This multilateral fiscal policy mix can also help reduce excess global imbalances.

“Critically important to growth that can be sustained and shared by all is investment in people at all life cycle stages, but especially the young. Better education, training, and retraining can both ease labor market adjustment to long-term economic transformation — from all sources, not only trade — and raise productivity. In the short term, the excessive youth unemployment that afflicts many countries urgently deserves attention. Investing in human capital should also push labor’s income share upward, contrary to the broad trend of recent decades, but governments should also consider correcting distortions that may have reduced workers’ bargaining power excessively.

“In sum, structural and fiscal policy together should promote economic conditions conducive to sustainable and more inclusive real wage growth.

“The third policy prong, monetary policy, still has a key role to play. Earlier deflation threats in advanced economies have receded considerably, but inflation has remained puzzlingly low even as unemployment rates have come down. Clear central bank communication and the smooth execution of monetary policy normalization, where and when appropriate, remain crucial. Success will help prevent market turbulence and sudden tightening of financial conditions which could disrupt the recovery with spillovers to emerging and developing economies.

“Those economies, in turn, face diverse monetary policy challenges but should continue where possible to use exchange rate flexibility as a buffer against external shocks, paying due attention to implications for price stability.

“Numerous global problems require multilateral action. Priorities for mutually beneficial cooperation include strengthening the global trading system, further improving financial regulation, enhancing the global financial safety net, reducing international tax avoidance, and fighting famine and infectious diseases. Also crucially important are to mitigate greenhouse gas emissions before they do more irreversible damage and to help poorer countries, which are not themselves substantial emitters, adapt to climate change. Of course, we have a WEO chapter on that in this cycle.
If the strength of the current upswing makes the moment ideal for domestic reforms, its breadth makes multilateral cooperation opportune. Policymakers should act while the window of opportunity is open,” the Fund said.

Asked during a Q&A session for better explanation on the dynamics in Africa, Oya Celasun, Chief of the World Economic Studies Division, Research department, answered thus: “So when we talk about Sub-Saharan Africa, what we need to keep in mind is a really significant amount of heterogeneity. What we see for the headline numbers is a pickup in growth this year, a better outcome, which is largely driven by the larger economies, Nigeria, South Africa, and Angola, where one of the factors that had been weighing on growth, particularly weighing on growth, are dissipating, and allowing for a somewhat better outcome but not necessarily a very strong one.

“In particular, in the case of Nigeria, stronger oil production after the problems in the Niger Delta last year are dissipating. Better agriculture production are playing a role. Likewise, in South Africa, a rebound in agricultural production as drought conditions in the broader region have eased, and stronger mining outputs are helping. So these are the dissipation of negative factors but, again, it is not a very strong growth impetus that is coming. But that is not to say that a number of economies are not growing strongly. Many, one-third of the countries are growing at around 5 percent. So that is also quite, that is a favorable part of the story, although it comes with risks in some countries where credit growth or public debt growth has been quite strong.

“Now turning to CEMAC, four of the economies are oil exporters, and they are adjusting their public finances to lower oil prices, and that is creating a drag for their economies. Cameroon is a relatively well-diversified one in that group and also in Africa more generally. In the context of cutting public spending, it is also seeing a slowdown in growth; but growth there is expected to be around 4 percent this year, which is still a pretty good outcome.

“Nigeria is going to have stronger growth this year, as I mentioned, because agriculture and oil production are doing better; but there is still a lengthy adjustment to lower oil prices ahead.”

Also, Gian Maria Milesi-Ferretti, Deputy Director, Research Department with the IMF said: “If I may add one word on this, the heterogeneity in the performance of emerging economies owes a lot to the structural production, so there are 34 emerging economies, emerging and developing economies, with negative per capita growth in 2017. Of these 34, 21 are fuel exporters. And you see it very clearly in Africa where a lot of the economies that are hit hardest by the declining commodity prices are the fuel exporters. That is really where a lot of the pain is, and it so happens that in Africa, some of those are among the largest in the Continent, Nigeria the largest; Angola the third largest. So that has been really a pattern across the emerging world.”

Source: Ghana/

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