The ‘double-dip’ recession would undermine the pace and strength of the anticipated global recovery, the World Bank reports, after NYU economist Nouriel Roubini, accurately predicted the global financial crisis in 2007.
The bank expects South Africa’s economy, which slumped into its first recession in 17 years during 2009, lending to an estimated 1.8% contraction in gross domestic product (GDP) to grow by 2% during 2010 and 2.7% in 2011.
The forecast is well below the 6% aspiration for economic growth in 2010, which is necessary for curbing the high unemployment and growing levels of inequality, within the job market.
Africa’s largest economy lost nearly one-million jobs during 2009, raising the official unemployment figure to 24.5% by the third quarter, while the broader definition of joblessness still comfortably exceeds the 30% level. And, on the inequality front, the country’s Gini coefficient of income inequality is, at 58, the worst in a peer group assembled by Standard & Poor’s, consisting of China, Hungary, Mexico, Poland, Russia and Thailand.
The World Bank’s growth forecasts for South Africa are more or less in line with the country’s own Medium Term Budget Policy Statement forecasts, released in October, which anticipates growth of 1.5% in 2010/11, followed by 2.7% in 2011/12 and 3.2% in 2012/13. These factors will updated by Finance Minister Pravin Gordhan, and delivered during his Budget address to Parliament, February 17, 2010.
The 2010 global market
The ‘Global Economic Prospects 2010′ report, released World Bank yesterday, indicates that South Africa’s economic recovery, including sub-Saharan Africa, will be fuelled by a recovery in private demand, exports, and investment, with the largest contribution expected to come from exports markets such as China, European Union and the US.
“However, growth in external demand is expected to wane in the second half of 2010, as the growth impact of the inventory restocking cycle and fiscal stimulus wanes,” the report notes, adding that the recovery in the region will, thus, remain “modest and fragile”.
“The projected rebound in growth in these economies should improve demand for sub-Saharan African exports and should trigger a modest recovery in investment flows, but, the major risk facing the sub-Saharan economies is that the world economy could experience a double dip or economic stagnation,” the study says.
This, in turn, would undermine the recovery in external demand for the sub-Saharan economies and would put pressure on commodity prices, constrain government revenues and possibly push debt to unsustainable levels. Governments may then be forced to implement procyclical fiscal cuts, increase taxation, or both, with adverse implications for poverty, health, education, and long-term growth prospects, the bank states.
“Over the next five to ten years, increased risk aversion, a more prudent regulatory stance, and the need to curb some of the riskier lending practices during the boom period that preceded the crisis can be expected to result in scarcer, more expensive capital for developing countries.”
Pace of growth will slow
The pace of growth in sub-Saharan Africa will, therefore, be well below the 6 % yearly levels recorded during the boom years between 2003 and 2007, as a result of lower real commodity prices and slower global growth.
The regional GDP is estimated to have increased by only 1.1% last year, countries in the territory felt the crisis through trade, foreign direct investment, tourism, remittances, and official assistance channels.
Excluding South Africa, this years GDP is expected to grow by 4.8% in sub-Saharan African countries, with growth of 4.2% in fragile countries and 4.8% in low-income countries.
“The overall regional outlook remains uncertain and the strength of the recovery will largely depend on demand from key export markets,” the report states, adding that, despite the return to positive growth, it will take several years before economies recoup the losses already endured.
The report also estimates that global GDP, which declined by 2.2% in 2009, is expected to grow by 2.7% this year and 3.2% in 2011, and in developing countries by 5.2% this year and 5.8% in 2011, from 1.2% in 2009.
GDP in rich countries, which declined by 3.3% in 2009, is expected to recover less quickly, at 1.8% this year and 2.3% in 2011 and world trade volumes, which fell 14.4% in 2009, are projected to expand by 4.3% and 6.2% in 2010 and 2011 respectively, the report notes.