Analytical sections of the latest Global Economic Prospects report for January 2020 by the World Bank have shown that the output in the Sub-Saharan Africa (SSA) region contracted by an estimated 3.7 percent in 2020, as the COVID-19 pandemic and associated lockdowns disrupted economic activity. As a result, per capita income shrank by 6.1 percent in 2020, setting average living standards back by at least a decade in a quarter of Sub-Saharan African economies.
Hardest hit were countries with large domestic outbreaks, those heavily dependent on travel and tourism, and commodity exporters, particularly oil exporters.
In Nigeria and South Africa, output fell sharply last year. Nigeria’s economy is estimated to have contracted 4.1percent in 2020, as the effects of the pandemic impacted economic activity in all sectors.
In South Africa, where economic activity was on weak footing before COVID-19, output is estimated to have fallen 7.8 percent last year. The country suffered the most severe outbreak of the pandemic in the region and underwent strict lockdowns that brought the economy to a standstill. Oil exporters in the region grappled with sharply lower prices (Angola, Equatorial Guinea, Republic of Congo, South Sudan), while those with large travel and tourism sectors endured near-complete shutdowns of visitor activity (Cabo Verde, Ethiopia, Mauritius, Seychelles). Contractions in agricultural commodity exporters were less steep (Benin, Côte d’Ivoire, Malawi, Uganda).
On the outlook growth in the region is forecast to rebound moderately to 2.7 percent in 2021. While the recovery in private consumption and investment is forecast to be slower than previously envisioned, export growth is expected to accelerate gradually, in line with the rebound in activity among major trading partners. The resumption in activity in major advanced and emerging economies and key trading partners of the region (Europe, China, US) is chiefly underpinned by positive news on vaccine development and rollout as well as new rounds of fiscal stimulus.
The report further reveals: “Expectations of a sluggish recovery in Sub-Saharan Africa reflect persistent COVID-19 outbreaks in several economies that have inhibited the resumption of economic activity. The pandemic is projected to cause per capita incomes to decline by 0.2 percent this year, setting Sustainable Development Goals (SDGs) further out of reach in many countries in the region. This reversal is expected to push tens of millions more people into extreme poverty over last year and this year.”
This cannot not go without the risk factors and to SSA risks are tilted to the downside. Growth in major trading partners could fall short of expectations. Widescale distribution of a COVID-19 vaccine in the region will likely face many hurdles, including poor transport infrastructure and weak health systems capacity. Such constraints, compounded by natural disasters such as recent devastating floods and rising insecurity, particularly in the Sahel, could delay recovery. Government debt in the region has increased sharply to an estimated 70 percent of GDP last year, elevating concerns about debt sustainability in some economies. Banks may face sharp increases in non-performing loans as companies struggle to service their debt due to falling revenues. Lasting damage of the pandemic could depress growth over the long term through the chilling effects of high debt on investment, the impact of lockdowns on schooling and human capital development, and weaker health outcomes.
In advanced economies, a nascent rebound stalled in the third quarter following a resurgence of infections, pointing to a slow and challenging recovery. U.S. GDP is forecast to expand 3.5 percent in 2021, after an estimated 3.6 percent contraction in 2020. In the euro area, output is anticipated to grow 3.6 percent this year, following a 7.4 percent decline in 2020. Activity in Japan, which shrank by 5.3 percent in the year just ended, is forecast to grow by 2.5 percent in 2021.
Aggregate GDP in emerging market and developing economies, including China, is expected to grow 5 percent in 2021, after a contraction of 2.6 percent in 2020. China’s economy is expected to expand by 7.9 percent this year following 2percent growth last year. Excluding China, emerging market and developing economies are forecast to expand 3.4 percent in 2021 after a contraction of 5percent in 2020. Among low-income economies, activity is projected to increase 3.3percent in 2021, after a contraction of 0.9percent in 2020.
“The pandemic has greatly exacerbated debt risks in emerging market and developing economies; weak growth prospects will likely further increase debt burdens and erode borrowers’ ability to service debt,” World Bank Acting Vice President for Equitable Growth and Financial Institutions Ayhan Kose said.
As severe crises did in the past, the pandemic is expected to leave long lasting adverse effects on global activity. It is likely to worsen the slowdown in global growth projected over the next decade due to underinvestment, underemployment, and labor force declines in many advanced economies.
The World Bank in its report has therefore urged policymakers to continue to sustain the recovery, gradually shifting from income support to growth-enhancing policies. In the longer run, in emerging market and developing economies, policies to improve health and education services, digital infrastructure, climate resilience, and business and governance practices will help mitigate the economic damage caused by the pandemic, reduce poverty and advance shared prosperity. In the context of weak fiscal positions and elevated debt, institutional reforms to spur organic growth are particularly important.
Central banks in some emerging market and developing economies have employed asset purchase programs in response to pandemic-induced financial market pressures, in many cases for the first time. When targeted to market failures, these programs appear to have helped stabilize financial markets during the initial stages of the crisis. However, in economies where asset purchases continue to expand and are perceived to finance fiscal deficits, these programs may erode central bank operational independence, risk currency weakness that de-anchors inflation expectations, and increase worries about debt sustainability.