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South Africa’s economy will probably contract for the first time in 17 years in 2009, while growth in Africa will slump to its lowest since 1993, the International Monetary Fund said.
The South African economy will contract 0.3 percent after commodity prices collapsed and foreign investment declined, the Washington-based lender said in its World Economic Outlook report today. For the continent as a whole, growth is forecast at 2 percent, down from the 3.4 percent estimated in January.
Recessions in the U.S., Europe and Japan, have slashed demand for commodities, undermining growth in countries such as Zambia, the continent’s biggest copper producer, and South Africa, the world’s largest producer of platinum. Kenya and Zambia have been forced to seek millions of dollars in loans from the IMF to help cushion their economies from a slide in foreign currency reserves.
“The main shock buffeting the continent is severe deterioration in external growth, which is reducing demand for African exports and curtailing workers’ remittances,” the IMF said. “The tightening of global credit conditions is reducing foreign direct investment and reversing portfolio flows,” especially to countries such as Ghana, Kenya, Nigeria, South Africa and Tunisia.
In January, the IMF estimated South Africa’s economy would expand 1.3 percent this year, higher than the 1.2 percent forecast by Finance Minister Trevor Manuel in his budget speech in February.
Since then, the global economic recession has deepened, forcing mining companies such as Anglo Platinum Ltd. to fire thousands of workers and leading manufacturers including ArcelorMittal South Africa Ltd., the continent’s biggest steelmaker, to scale back output.
South Africa’s economy contracted an annualized 1.2 percent in the fourth quarter, the first decline in a decade, the statistics office said on Feb. 24.
Africa’s biggest economy will continue to shrink this year as “capital outflows are forcing a sharp adjustment in asset prices, mainly in equity, bond and currency markets, and in real activity,” the IMF said.
South Africa’s inflation rate will probably average 6.1 percent this year and 5.6 percent in 2010, according to the IMF. The current account deficit, the broadest measure of trade in goods and services, is forecast to narrow to 5.8 percent of gross domestic product this year from 7.4 percent last year, the report added.
The IMF cut its growth forecast for Sub-Saharan Africa, the world’s poorest region, by 1.8 percentage points to 1.7 percent for this year. Growth in the region will probably rebound to 3.8 percent in 2010, though still lower than the 5.5 percent recorded in 2008, according to the IMF.
“On average, the downturn is most pronounced in oil- exporting countries, such as Angola and Equatorial Guinea, and in key emerging and frontier markets, such as Botswana, Mauritius and South Africa,” the IMF said.
Angola, Africa’s second-biggest oil exporter that had the fastest growing economy on the continent in 2007, will struggle this year after crude oil prices collapsed. The economy will contract 3.6 percent in 2009, compared with growth of 14.8 percent in 2008 and 20.3 percent in 2007, according to the IMF.
Crude oil prices have dropped by half in New York since the beginning of last year and were trading as low as $48.02 a barrel today.
The slump in commodity earnings will undermine government revenues on the continent, pushing the budget deficit to an average of 4.5 percent of GDP in 2009, compared with a surplus of 1.3 percent the year before, according to the IMF.
The drop in exports will also worsen the continent’s current account deficit to an average of 6.5 percent of GDP this year, compared with a surplus of 1 percent in 2008, the IMF said.
Slower economic growth and lower food and fuel cost will ease price pressures, with inflation expected to average 9 percent this year and 6.3 percent in 2010, the IMF said.