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The latest IMF forecasts predict that global gross domestic product growth will slow down from 3.4% in 2022 to 2.8% this year, but other economists believe that there should be a lot more concern about tightening credit conditions and what this means for growth in advanced economies.
According to the IMF, the slowdown in gross domestic product (GDP) growth reflects a slight 0.1 percentage point reduction in growth during 2023 relative to the January World Economic Outlook (WEO) forecasts.
When compared to the 2022 January WEO, growth in 2023 has been cut by a full percentage point.
However, economic research group, Oxford Economics Africa, says there is still a big divergence between its growth forecasts and that of the IMF.
“This is understandable given the prevailing uncertainty, but we are a lot more concerned about tightening credit conditions and debt sustainability that will also be determined by how credit conditions play out,” the group says.
The group is especially concerned about the impact on advanced economies in the second half of 2023 and 2024.
“Our latest global forecasts show GDP growth easing to 2.3% this year. A key difference in our thinking seems to be that we expect a greater economic impact from tighter financial conditions in advanced economies than the IMF does.”
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The WEO report does acknowledge that risks to the outlook are squarely to the downside, stating that the estimated probability of global growth falling below 2% this year is now about 25%, more than double the normal probability. This has happened only five times since 1970.
Oxford Economics Africa says the only major positive GDP growth revision relative to the October forecast from an African perspective is for Ethiopia, with the IMF lifting the 2023 figure from 5.3% to 6.1%.
“We foresee growth of just under 4.0% this year, with the political environment still far from stable and the liquidity crisis deterring all but the most risk-tolerant investors. In turn, the latest figures show several cuts to 2023 GDP growth relative to the October forecast round, most notably for Ghana (-1.2 ppts to 1.6%), South Africa (-1.0 ppt to 0.1%), Mauritius (-0.8 ppt to 4.6%) and Egypt (-0.7 ppt to 3.7%).”
These adjustments bring the latest IMF figures more in line with Oxford Economics Africa’s projections, although the group is now slightly more optimistic about the South African and Ghanaian economies, while still much more pessimistic on Mauritian and Egyptian growth.
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Countries where the IMF sees growth more than a percentage point higher than the group does include Angola, Côte d’Ivoire, Kenya, Mozambique, Uganda and Zambia, while the IMF expects growth of roughly two percentage points higher in Botswana, Egypt, Ethiopia, Mauritius and Senegal.
The group says a major theme of the latest WEO report is debt sustainability which is particularly relevant in an African context. The IMF notes that around 56% of low-income developing countries are estimated to be in debt distress already or at high risk of it.
“The combination of higher borrowing costs and lower growth could cause systemic debt distress in emerging markets and developing economies,” the report notes, but the group says the forecasts again tell a much more sanguine story, with public debt expressed as a proportion of GDP expected to drop in coming years in most major African economies.
The biggest reductions in public debt by 2026, according to the IMF, will take place in Ethiopia (down 16.6 ppts), Angola (-12.7 ppts), Cameroon (-8.9 ppts), and the DRC (-8.8 ppts). In contrast, Mozambique’s debt burden is expected to increase by around 21.6 ppts over this period, with significant increases also seen in Algeria (+9.9 ppts) and South Africa (+9.0 ppts).
A significant section of the report is also dedicated to research on debt restructuring, which is very topical at the moment given that a number of African countries, including Zambia, Ghana and Ethiopia, are stuck in difficult debt restructuring talks.
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On the topic of debt restructuring, the report states that “debt restructuring is always a very complex process that involves burden sharing among residents, domestic creditors and foreign creditors” and that “it is by no means a free lunch for countries undergoing this process”.
Oxford Economics Africa says the IMF is a lot more bullish than the group is on the US economy.
“We are yet to see to what extent aggressive policy tightening – which has already ‘broken’ something, as the saying goes – will tame inflation and tighten credit conditions in the US and abroad.
“A war is still raging in Eastern Europe and while the commodity price impact seems to have dissipated, the geopolitical ramifications of aligning with either the West, Russia/China, or neither, could yet have important trade and investment implications.”
The fiscal trajectories of a number of African countries are also fraught with uncertainty, the group says. Rising borrowing costs, a slowdown in economic growth and increasing socio-economic demands due to surging living costs are all conspiring to undermine debt sustainability.
“It would be better for a few countries to pre-emptively start debt discussions with creditors, but judging by what is happening in Zambia, Ghana and Ethiopia, the best strategy might be to wait and see for now.”
The Global Sovereign Debt Roundtable started today, April 12 and what happens there will be the most important thing to come out of Washington this week, in addition to some rather hopeful economic forecasts.