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October 12, 2012

IMF Sees Continued Growth for China, Sub-Saharan Africa

by Steve Herman

The Eurozone crisis continues to weigh heavily on the global economy. But there are relative bright spots, such as China and sub-Saharan Africa, as reported at the annual joint meeting of the International Monetary Fund and the World Bank in Tokyo.

The IMF predicts China's growth will return to above eight percent next year.

The IMF's Asia-Pacific region director, Anoop Singh, acknowledges there are concerns China's real estate bubble could burst and water down such growth.

"Obviously that is a downside risk. But our sense is that is a remote possibility. China is not having a hard landing," said Singh.

The troubles in single-currency Europe are hurting demand for exports from China and India, as well as other countries in the Asia region.

Overall, growth in Asia is expected to be 5.9 percent next year, down from an earlier IMF forecast of 6.6 percent. But that is still high enough for Asia's economy to remain the world's fastest growing.

Another region, known more for its poverty than robust economic growth, is also enjoying a brighter outlook. It is sub-Saharan Africa, where the IMF reports the near-term outlook  “remains broadly positive” with growth projected above five percent over the next year.

It would be at least one percent higher if not for the shock from the Eurozone, says the director of the IMF's Africa department, Antoinette Monsio Sayeh.

“International commodity prices have remained relatively strong to date providing, of course, support for natural resource exporters in the region," she said. "And, secondly, domestic demand has provided solid support to growth, helped by both public and private investments. And private investments have been linked to the natural resource production in the region which has been expanding in a number of countries."

But Sayeh warns rising food prices pose a serious threat in some countries, such as Malawi, Zimbabwe and Lesotho.

Nigerian development economist Edith Jibunoh, a director at the advocacy group One (co-founded by the rock star Bono), says sub-Saharan Africa's growth is not inclusive and a lot of people are getting left behind.

"So when you disaggregate the numbers you start to see some very disheartening situations," she said. "Infrastructure deficits on the continent are still humongous. There's not even a third of the amount of money that needs to be invested in infrastructure getting spent on an annual basis."

That gap every year, Jibunoh says, totals $40 billion.

The IMF, meanwhile, is suggesting African policy makers reduce national budgets, especially household subsidies for fuel and electricity, and use that money to help sustain growth amid the international economic slowdown.

Benno Ndulu, governor of the Bank of Tanzania,  says the 45-nation region can buffer itself from a recession caused by the second-wave of the Euro shock by building inter-regional trade.

Ndulu also is floating another idea he acknowledges is controversial.

“Let's still look at the possibility of reserve pooling options to exploit the differences in the exposure to risks across our countries," said Ndulu. "Not all of us suffer the same type of risks. Not all commodities suffer price declines at the same time. And we should  be able, I think, to pool risks. It takes probably very strong political decisions to get to that stage."

The region's largest nation, South Africa, which is more integrated with the global economy than its neighbors, is forecast to experience growth of just 1.6 percent next year. The nation is struggling with labor unrest and high unemployment.