Saturday, July 13, 2024

IMF cuts Botswana’s economy growth for 2023

The International Monetary Fund (IMF) has warned of a rocky recovery, with global economic growth expected to grow at a slower pace than initial thought in January, as major economies experience tampered growth.

The IMF’s April World Outlook Report suggests that global growth will bottom out at 2.8 percent this year before rising modestly to 3 percent in 2024. In the January outlook, the IMF had forecasted global growth to fall from an estimated 3.4 percent in 2022 to 2.9 percent in 2023, then rise to 3.1 percent in 2024.

According to the report, global inflation will decrease, although more slowly than initially anticipated, from 8.7 percent in 2022 to 7 percent this year and 4.9 percent in 2024.

“On the surface, the global economy appears poised for a gradual recovery from the powerful blows of the pandemic and of Russia’s unprovoked war on Ukraine. China is rebounding strongly following the reopening of its economy. Supply-chain disruptions are unwinding, while the dislocations to energy and food markets caused by the war are receding,” said Pierre-Olivier Gourinchas, the IMF’s economic counsellor.

According to the report, the slowdown is concentrated in advanced economies, especially the euro area and the United Kingdom, where growth is expected to fall to 0.7 percent and -0.4 percent, respectively, this year before rebounding to 1.8 and 2.0 percent in 2024.

The IMF said its five-year ahead growth forecasts declined steadily from 4.6 percent in 2011 to 3 percent in 2023. The decline reflects the growth slowdown of previously rapidly growing economies such as China and Korea.

“But some of the more recent slowdown may also reflect more ominous forces: the scarring impact of the pandemic; a slower pace of structural reforms, as well as the rising threat of geoeconomic fragmentation leading to more trade tensions; less direct investment; and a slower pace of innovation and technology adoption across fragmented blocs, ” the report said.

The report highlighted that risks to the economic outlook are heavily skewed to the downside, with the chances of a hard landing having risen sharply. Financial sector stress could amplify and contagion could take hold, weakening the real economy through a sharp deterioration in financing conditions and compelling central banks to reconsider their policy paths. Pockets of sovereign debt distress could, in the context of higher borrowing costs and lower growth, spread and become more systemic, the report said.

The Bretton Wood institution estimated Botswana’s real gross domestic product (GDP) – which measures the value of all goods and services produced in the country within a year – to have been 3.6 percent in 2022, then lowering down to 2.7 percent this year, and picking up to 3.7 percent in 2024. GDP is a key economic indicator of the size and health of a country’s economy.

However, Botswana’s economic growth in 2022 was much higher than IMF’s projections, with the economy expanding by 5.8 percent last year. The country’s annual GDP was 6.8 percent in the first quarter of 2022, then decelerated to 5.1 percent in the second, and picked to 5.3 percent, and rounded up the fourth quarter at 5.9 percent.

The two last quarters of 2022 parried off fears of a looming recession that has been associated with other economies. A recession occurs when the economy experiences two straight quarters of shrinking GDP.

The growth rate of 5.8 percent in 2022 is also higher than the ministry of Finance’s projected GDP growth of 4.2 percent in 2022, and significantly lower than the 11.8 percent growth in 2021. Botswana’s GDP contracted by 8.7 percent in 2020, the deepest contraction in more than two decades as the diamond industry floundered amid the outbreak of COVID-19 which disrupted business activities.

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