IMF: growth for commodity exporters weighed down in Nigeria, Angola

The International Monetary Fund (IMF) World Economic Outlook released on Tuesday shows that growth prospects for commodity exporters in Nigeria and Angola are hampered and are expected to reach about 2.6 percent and 3.9 percent in the medium term. Excerpts:

Global growth in 2019 is also weighed down by the emerging market and developing economy group, where growth is expected to tick down to 4.4 percent in 2019 (from 4.5 percent in 2018), 0.3 percentage point lower than in the October 2018 WEO. The decline in growth relative to 2018 reflects lower growth in China and the recession in Turkey, with an important carryover from weaker activity in late 2018, as well as a deepening contraction in Iran.

Conditions are projected to improve during 2019 as stimulus measures sustain activity in China and recession strains gradually ease in economies such as Argentina and Turkey. In 2020, growth is projected to rise to 4.8 percent, driven almost entirely by an expected strengthening of activity in these economies on the back of policy adjustment and some easing of strains in countries affected by conflict and geopolitical tensions. For the latter group of countries in particular, the forecast is subject to very significant uncertainty. With declining growth in advanced economies, the projected pickup in global growth in 2020 is entirely predicated on this projected improvement for the emerging market and developing economy group.

Near-term prospects for emerging market and developing economies continue to be shaped by the interaction between country-specific fundamentals and a challenging external environment marked by the slowdown in advanced economies; trade tensions; expected gradual tightening of financial conditions consistent with some further removal of monetary policy accommodation in the United States; and, for commodity exporters, a generally subdued outlook for commodity prices (including oil prices, which are projected to remain below their 2018 average throughout the forecast horizon).

Growth in emerging and developing Asia is expected to dip to 6.3 percent in 2019 and 2020 (from 6.4 percent in 2018), with a marginal downward revision for 2020 relative to the October WEO. Economic growth in China, despite fiscal stimulus and no further increase in tariffs from the United States relative to those in force as of September 2018, is projected to slow on an annualized basis in 2019 and 2020. This reflects weaker underlying growth in 2018, especially in the second half, and the impact of lingering trade tensions with the United States. The projection for 2019 is slightly stronger than in the October 2018 WEO, reflecting the revised assumption on United States tariffs on Chinese exports, as described in Box 1.2, while the projection for 2020 is slightly weaker, as the underlying momentum in activity is more subdued. In India, growth is projected to pick up to 7.3 percent in 2019 and 7.5 percent in 2020, supported by the continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy. Nevertheless, reflecting the recent revision to the national account statistics that indicated somewhat softer underlying momentum, growth forecasts have been revised downward compared with the October 2018 WEO by 0.1 percentage point for 2019 and 0.2 percentage point for 2020, respectively.

Activity in emerging and developing Europe in 2019 is expected to weaken more than previously anticipated, despite generally buoyant and higher-than-expected growth in several central and eastern European countries, before recovering in 2020. The sizable revision for the region is mostly due to a substantial projected contraction in Turkey in 2019, where the weakness in demand—following tighter external financing conditions and needed policy tightening—is expected to continue in early 2019 before a recovery takes hold in the second half of the year.

In Latin America, growth is projected to recover over the next two years, to 1.4 percent in 2019 and 2.4 percent in 2020. In Brazil, growth is projected to strengthen from 1.1 percent in 2018 to 2.1 percent in 2019 and 2.5 percent in 2020. In Mexico, growth is now forecast to remain below 2 percent in 2019–20, a markdown close to 1 percentage point for both years relative to October. These changes, in part, reflect shifts in perceptions about policy direction under new administrations in both countries. Argentina’s economy is projected to contract in the first half of 2019 as domestic demand slows with tighter policies to reduce imbalances, returning to growth in the second half of the year as real disposable income recovers and agricultural production rebounds after last year’s drought. Venezuela’s economy is expected to contract by one-fourth in 2019, and a further 10 percent in 2020—a greater collapse than projected in the October 2018 WEO and one that generates a sizable drag on projected growth for the region and for the emerging market and developing economy group in both years.

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Growth in the Middle East, North Africa, Afghanistan, and Pakistan region is expected to decline to 1.5 percent in 2019, before recovering to about 3.2 percent in 2020. The outlook for the region is weighed down by multiple factors, including slower oil GDP growth in Saudi Arabia; ongoing macroeconomic adjustment challenges in Pakistan; US sanctions in Iran; and civil tensions and conflict across several other economies, including Iraq, Syria, and Yemen, where recovery from the collapse associated with the war is now expected to be slower than previously anticipated.

In sub-Saharan Africa, growth is expected to pick up to 3.5 percent in 2019 and 3.7 percent in 2020 (from 3.0 percent in 2018). The projection is 0.3 percentage point and 0.2 percentage point lower for 2019 and 2020, respectively, than in the October 2018 WEO, reflecting downward revisions for Angola and Nigeria with the softening of oil prices. Growth in South Africa is expected to marginally improve from 0.8 percent in 2018 to 1.2 percent in 2019 and 1.5 percent in 2020, a 0.2 percentage point downward revision for both years relative to the October projections. The projected recovery reflects modestly reduced but continued policy uncertainty in the South African economy after the May 2019 elections.

Activity in the Commonwealth of Independent States is projected to expand about 2¼ percent in 2019–20, slightly lower than projected in the October 2018 WEO, as weaker oil prices weigh on Russia’s growth prospects.

Modest Outlook for Medium-Term Growth Beyond 2020, global growth is set to plateau at 3.6 percent over the medium term. For the advanced economy group, growth is projected to moderate further over the medium term as the underlying structural headwinds to potential output (namely, continued weak productivity growth and slowing labor force growth) increasingly assert influence on the path of output as the cyclical forces discussed above fade away. Growth for the emerging market and developing economy group is expected to broadly stabilize at its 2020 level for the outer years of the forecast horizon, but with important offsetting regional differences.

Specifically, for advanced economies, growth is projected to slow to 1.6 percent by 2022 and remain at that level thereafter. The productivity slowdown that set in before the 2008–09 global financial crisis (Adler and others 2017) is projected to abate somewhat, with a slight pickup in productivity expected over the medium term. Despite the apparent proliferation of digitalisation and automation, their cumulative impact on productivity is expected to be modest over the forecast horizon—likely benefiting consumer welfare to a larger extent than labor productivity (Box 1.5 of the April 2018 WEO). Other developments potentially have less favorable implications for productivity. These include the retreat from global economic integration (projections for global trade volume growth have been marked down following the tariff increases of 2018).

The modest uptick expected in productivity is likely only partially to counteract the drag on potential output growth anticipated from slower labor force growth as the population ages. This is particularly relevant for Japan and southern Europe (see Chapter 2 of the April 2018 WEO for a discussion of the changes in labor force participation rates across advanced economies).

For emerging market and developing economies, growth is projected to stabilize at about 4.8 percent over the medium term. The combination of higher growth than in advanced economies and the group’s rising weight in global GDP translates into a significant increase in emerging market and developing economies’ share of global growth, from 76 percent in 2019 to about 85 percent in 2024.

The medium-term growth forecast incorporates continued strong investment growth in emerging market and developing economies, accounting for more than one-third of their GDP growth rate during the projection horizon (Figure 1.14). In turn, this robust investment path is predicated on a smooth trajectory for the drivers of capital spending; a gradual tightening in financial conditions (which is particularly relevant to the investment outlook in the emerging market and developing economy group, given the rapid build up of leverage during years of low interest rates); quick resolution of trade disagreements and subsequent easing of trade tensions; and broader policy actions that help reduce uncertainty. Chapter 3 discusses how the retreat from trade integration threatens the long-standing downward trend in the relative price of capital goods and how this could weigh on the investment prospects of developing economies.

The medium-term growth forecast for emerging market and developing economies reflects important differences across regions. In emerging Asia, growth is expected to remain above 6 percent through the forecast horizon. Central to this smooth growth profile is a gradual slowdown in China to 5.5 percent by 2024 as internal rebalancing toward a private-consumption and services-based economy continues and regulatory tightening slows the accumulation of debt and associated vulnerabilities. Growth in India is expected to stabilize at just under 7¾ percent over the medium term, based on continued implementation of structural reforms and easing of infrastructure bottlenecks.

In Latin America, growth is projected to increase from 2.4 percent in 2020 to 2.8 percent over the medium term. Financial stabilisation and recovery in Argentina, where growth is projected to strengthen to about 3½ percent over the medium term, contributes to that region’s growth improvement. So is stable, though moderate, growth in Brazil and Mexico (in the range of 2¼–2¾ percent) as structural rigidities, subdued terms of trade, and fiscal imbalances (particularly for Brazil) weigh on the outlook.

Activity in emerging Europe is projected to pick up from the current post-global-financial-crisis low, with the region expected to grow just above 3 percent over the medium term. This improvement reflects primarily the forecast for Turkey, where activity is projected to gradually strengthen after the economy returns to positive annual growth in 2020. Over the medium term,

Turkey’s growth is projected to pick up to 3.5 percent as domestic demand recovers from the current sharp contraction that is reducing macroeconomic and financial imbalances. For other economies in the region with robust growth rates in recent years, such as Poland and Romania, growth is expected to moderate to about 3 percent over the medium term, reflecting the fading of stimulus from EU investment funds and accommodative policies.

The outlook for the Commonwealth of Independent States is for growth to stabilize at 2.4 percent over the medium term. This largely reflects sluggish growth in Russia of about 1½ percent over the medium term, weighed down by the modest outlook for oil prices and structural headwinds.

Prospects vary across sub-Saharan Africa, reflecting the heterogeneity of the economies, associated with disparities in the level of development, exposure to weather shocks, and commodity dependence. For the region as a whole, growth is projected to increase from 3.7 percent in 2020 to about 4 percent in 2024 (although for close to two-fifths of economies, the average growth rate over the medium term is projected to exceed 5 percent).

Growth prospects for commodity exporters are weighed down by the soft outlook for commodity prices, including for Nigeria and Angola, where growth is expected to reach about 2.6 percent and 3.9 percent, respectively, in the medium term. In South Africa, growth is projected to stabilise at 1¾ percent over the medium term as structural bottlenecks continue to weigh on investment and productivity, and metal export prices are expected to remain subdued. Rising debt-service costs as financial conditions tighten globally and difficult adjustment processes to diversify production structures away from resource extraction are expected to weigh on growth in many economies across the region.

The medium-term outlook for the Middle East, North Africa, Afghanistan, and Pakistan region is largely shaped by the outlook for fuel prices, needed adjustment to correct macroeconomic imbalances in certain economies, and geopolitical tensions. Growth in Saudi Arabia is expected to stabilize at about 2¼–2½ percent over the medium term, as stronger non-oil growth is countered by the subdued outlook for oil prices and output. In Pakistan, in the absence of further adjustment policies, growth is projected to remain subdued at about 2.5 percent, with continued external and fiscal imbalances weighing on confidence.

Elsewhere in the region, activity is weighed down by the expected impact of sanctions in Iran, civil strife in Syria and Yemen, and rising debt-service costs and tighter financial conditions in Lebanon.

Convergence prospects are bleak for some emerging market and developing economies. Across sub-Saharan Africa and the Middle East, North Africa, Afghanistan, and Pakistan region, 41 economies, accounting for close to 10 percent of global GDP in purchasing-power-parity terms and close to 1 billion in population, are projected to grow by less than advanced economies in per capita terms over the next five years, implying that their income levels are set to fall further behind those economies.