African Economies To Rebound By 3.2% In 2021

After being through the worst recession in its recent history in 2020 with a -4.2 percent decline of GDP, the Allianz economists expect the African economy to rebound by +3.2% in 2021 even as Covid-19 continues to bit across the world.

Covid-19 infection rates remained relatively low on the continent compared with the other parts of the World. However, African economies were severely hit by the crisis due to weak internal and external demand and commodity price shocks.

In 2021, the recovery will be essentially driven by stronger domestic and world demand and trade, higher commodity prices, and resuming tourism activity. With the world warming up towards the Covid-19 vaccine, it is expected that things will go back to normal.

In 2021, Africa will benefit from supportive fiscal stimuli and good financing conditions globally. Interest rates, in particular, will remain low, very long in the US and even longer in Europe.

The Fed is likely to envisage a first-rate hike from Q3 2023 only. Although other central banks tend to just follow suit most of the time, the ECB will have a hard time doing so because the perspective of the Fed’s monetary policy normalization is likely to awaken the beast of sovereign debt risk in Europe. This might incite the ECB to extend its unconventional monetary program beyond the Fed’s own program to contain Eurozone sovereign spreads.

“Low-interest rates are a sweet poison. The Covid-19 crisis has worsened fiscal imbalances in Africa. The increasing of public spending and the decreasing of government revenues from tourism, natural resources, and taxes pushed up public debt to hardly sustainable levels. African governments have now less fiscal space than after at the onset of the Great Financial Crisis to boost economic recovery. The main economic challenge for Africa is to finance growth sustainably”, said Ludovic Subran. The need to focus on attractiveness and competitiveness will be key.