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Africa Economic Growth Likely to Slow

         Date: 2012-07-18

           Tag: Africa Economic, Africa Economic Growth

Summary: The new outlook forecasts growth in emerging and developing economies to moderate at 5,6 percent in 2012 before picking up to 5,9 percent in 2013, a downward revision of 0,1 and 0,2 percentage point…

The new outlook forecasts growth in emerging and developing economies to moderate at 5,6 percent in 2012 before picking up to 5,9 percent in 2013, a downward revision of 0,1 and 0,2 percentage point in 2012 and 2013, respectively, relative to the April 2012 forecast.

The International Monetary Fund (IMF) has revised downwards the economic growth for emerging and developing economies, citing external factors and serious risks that continue to loom large.

The sovereign debt crisis in the euro area has had a serious impact on the rest of the world's economies, with the growth prospects in emerging markets weakening, leaving them less able to deal with spillovers from the euro-area crisis or to address their own home-grown fiscal and financial vulnerabilities.

"Emerging markets are facing extraordinary uncertainty about external conditions impinging on their economic performance and strong foreign exchange buffers," said the IMF in its just released outlook for 2012.

In the near term, activity in many emerging market economies is expected to be supported by the policy easing that began in late 2011 or early 2012 and, in net fuel importers, by lower oil prices, depending on the extent of the pass-through to domestic retail prices which is often incomplete.

Downside risks to growth in emerging market and developing economies seem primarily related to external factors in the near term.

The slowdown in emerging market growth since mid-2011 has been partly the result of policy tightening in response to signs of overheating.

But policies have been eased since, and this easing should gain traction in the second half of 2012.

"Nevertheless, concerns remain that potential growth in emerging market economies might be lower than expected. Growth in these economies has been above historical trends over the past decade or so, supported in part by financial deepening and rapid credit growth, which may well have generated overly optimistic expectations about potential growth. As a result, growth in emerging market economies could be lower than expected over the medium term, with a correspondingly smaller contribution to global growth," states the IMF.

Also of concern are risks to financial stability after years of rapid credit growth in the current environment of weaker global growth, elevated risk aversion and some signs of domestic strain.

Among low-income countries, those dependent on aid face risks of a lower-than- oil commodities tilt downwards.

Crisis management remains the top priority, with the utmost priority resolving the crisis in the euro area. The recent agreements, if implemented in full, will help to break the adverse links between sovereigns and banks and create a banking union.

In particular, once the agreed- upon single supervisory mechanism for the euro-area banks is established, the European Stability Mechanism (ESM) would be able to recapitalise banks directly.

"Downside risks to this weaker global outlook continue to loom large. The most immediate risk is still that delayed or insufficient policy action will further escalate the euro-area crisis.

In this regard, agreements reached at the EU leaders' summit are steps in the right direction.


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