Weaker commodity prices will affect growth

Growth in sub-Saharan Africa is expected to slow to 4.6% in 2009 – falling below 5% for the first time in five years due to falling commodity prices. The World Bank’s 2009 Global Economic Prospects report says, however, that “direct effects of the global financial and economic crisis are likely to be much more limited than in other regions, because African economies are less integrated into the international financial system and rely relatively less on international capital and bond markets to finance investment”. Where the economic meltdown will have an effect is through declines in demand in key external markets, and the “contribution of trade to GDP growth is likely to be negative in 2009,” predicts the report. “Perhaps more importantly, export revenues will be affected by markedly lower commodity prices next year, eroding government and corporate finances and affecting farmers’ incomes adversely,” it adds. Additional adverse factors coming to affect Sub-Saharan Africa, potentially with some lag, are a slowing pace of worker remittance receipts, and importantly for many low income countries, possible moderation in Official Development Assistance (ODA) flows. More of an issue for commodity-rich countries, gross portfolio flows to the region are expected to fall markedly as credit becomes scarce and more expensive and investors’ risk aversion intensifies. Official aid may also be squeezed by reduced fiscal space in donor countries as they tackle financial crises at home. While oil exporters hold sufficient resources to weather the global economic downturn, many oil-importing economies have been hit hard by higher food and fuel prices and are less well equipped for the coming downturn. The World Bank sees demand for commodities starting to strengthen gradually over the second half of 2009 and into 2010. In oil exporting economies, growth will slow by more than a full percentage point to 6,6% percent, but the exporters will remain the fastest-growing group of countries in the region, while growth in oilimporting countries outside South Africa is projected to ease to 4,6%.