Recovery from the Global Crisis: Implications for SADC and Development Finance Keith Jefferis May 2010
Remember early 2009 …. <ul><li>World Economy </li></ul><ul><li>Financial crisis </li></ul><ul><li>Freezing of credit marke...
Global growth slowdown ... and recovery <ul><li>Depths of recession – 4Q2008 and 1Q2009 </li></ul><ul><li>Recession was de...
Emerging markets leading the recovery <ul><li>Recovery has been driven by emerging markets </li></ul><ul><ul><li>Faster em...
South Africa lagging other EMs, but recovering <ul><li>South Africa’s recession has been comparable in depth to Emerging M...
Signs of recovery ... minerals prices <ul><li>Copper </li></ul><ul><li>Nickel </li></ul>
…  and oil prices
Economic Developments in Sub-Saharan Africa
SSA Economic Outturn <ul><li>Greater resilience than expected </li></ul><ul><ul><li>Growth slowdown relatively modest </li...
Why such a modest economic impact on SSA?  <ul><li>International </li></ul><ul><li>Quick and robust global recovery in gro...
Finance & Capital Markets <ul><li>Central to economic problems in developed markets – and transmission of those problems a...
But of course there are problems… <ul><li>Fiscal & Debt conditions </li></ul><ul><ul><li>Limited fiscal space  </li></ul><...
Economic Outlook - SADC
Inflation: much reduced, not a major concern, allows monetary policy easing Source: IMF REO for SSA (April 2010) 46%
Real GDP growth – recession mostly avoided in 2009, strong recovery projected for 2010 Source: IMF Regional Economic Outlo...
Fiscal balance: some large deficits, esp. in SACU, but generally manageable
Current account: some large deficits, and dependence on capital inflows Source: IMF Regional Economic Outlook, April 2010
Reserves: some declines, but still comfortable in most countries Source: IMF Regional Economic Outlook, April 2010
Outlook & risks – world economy <ul><li>More positive than a year ago </li></ul><ul><ul><li>Worst fears of depression appe...
Outlook & risks …. SADC <ul><li>Positive </li></ul><ul><li>Africa growth should resume pre-crisis trajectory – helped by h...
Implications for DFIs <ul><li>Finance is at the centre of attention </li></ul><ul><li>SADC financial systems generally sta...
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2010:Recovery from the Global Crisis: Implications for SADC and Development Finance

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2010:Recovery from the Global Crisis: Implications for SADC and Development Finance

  1. 1. Recovery from the Global Crisis: Implications for SADC and Development Finance Keith Jefferis May 2010
  2. 2. Remember early 2009 …. <ul><li>World Economy </li></ul><ul><li>Financial crisis </li></ul><ul><li>Freezing of credit markets </li></ul><ul><li>Sudden plunge into deep recession </li></ul><ul><li>Collapsing commodity prices </li></ul><ul><li>Concern about prolonged depression </li></ul><ul><li>Rising unemployment </li></ul><ul><li>Bank rescues and fiscal injections </li></ul><ul><li>SADC/SSA </li></ul><ul><li>No financial crisis, but concern about knock-on effects of global crisis, via </li></ul><ul><ul><li>Trade </li></ul></ul><ul><ul><li>Capital/financial flows </li></ul></ul><ul><ul><li>Risk aversion </li></ul></ul><ul><li>Macroeconomic concerns </li></ul><ul><ul><li>Growth slowdown </li></ul></ul><ul><ul><li>BoP </li></ul></ul><ul><ul><li>Fiscal problems </li></ul></ul><ul><ul><li>Poverty </li></ul></ul>
  3. 3. Global growth slowdown ... and recovery <ul><li>Depths of recession – 4Q2008 and 1Q2009 </li></ul><ul><li>Recession was deep, but recovery has been robust </li></ul><ul><li>Fears of prolonged depression not realise </li></ul><ul><li>Global growth projected to settle in 3% - 4% range in 2010-11 </li></ul>
  4. 4. Emerging markets leading the recovery <ul><li>Recovery has been driven by emerging markets </li></ul><ul><ul><li>Faster emergence from recession </li></ul></ul><ul><ul><li>Higher growth during recovery </li></ul></ul><ul><li>Less affected by financial crisis and debt problems – more resilience </li></ul><ul><li>Developed economies – sluggish recovery: </li></ul><ul><ul><li>Fiscal/debt problems </li></ul></ul><ul><ul><li>Unemployment </li></ul></ul><ul><ul><li>Euro-zone crisis </li></ul></ul>
  5. 5. South Africa lagging other EMs, but recovering <ul><li>South Africa’s recession has been comparable in depth to Emerging Markets generally, but: </li></ul><ul><ul><li>SA lagging general EM recovery </li></ul></ul><ul><ul><li>SA growth expected to be reasonably robust in 2010, due partly to World Cup effect </li></ul></ul><ul><ul><li>Growth projected to weaken going into 2011 </li></ul></ul>
  6. 6. Signs of recovery ... minerals prices <ul><li>Copper </li></ul><ul><li>Nickel </li></ul>
  7. 7. … and oil prices
  8. 8. Economic Developments in Sub-Saharan Africa
  9. 9. SSA Economic Outturn <ul><li>Greater resilience than expected </li></ul><ul><ul><li>Growth slowdown relatively modest </li></ul></ul><ul><ul><li>Quick recovery expected </li></ul></ul><ul><ul><li>Macroeconomic stress manageable </li></ul></ul><ul><li>Greater impact on middle income countries, more integrated into global markets </li></ul>Source: IMF REO SSA April 2010
  10. 10. Why such a modest economic impact on SSA? <ul><li>International </li></ul><ul><li>Quick and robust global recovery in growth, trade & commodity prices </li></ul><ul><li>SSA growth slowdown driven by reduced demand, not banking crises </li></ul><ul><li>Emerging market growth -> commodity prices </li></ul><ul><li>Recovery in financial flows </li></ul><ul><li>Domestic </li></ul><ul><li>Prior reforms and restructuring -> many countries started from strong macroeconomic position </li></ul><ul><li>Prior fiscal reforms enabled fiscal stimulus </li></ul><ul><li>Appropriate monetary policy response – inflation not a major concern </li></ul><ul><li>Resilient financial systems </li></ul><ul><li>Contrast with previous crises </li></ul>
  11. 11. Finance & Capital Markets <ul><li>Central to economic problems in developed markets – and transmission of those problems around the world </li></ul><ul><ul><li>Credit crunch </li></ul></ul><ul><ul><li>Risk aversion </li></ul></ul><ul><ul><li>Market collapses </li></ul></ul><ul><li>Impact short-lived </li></ul><ul><ul><li>Only small decline in remittance inflows </li></ul></ul><ul><ul><li>Development assistance: overall flows held up, especially with boost from MFIs </li></ul></ul><ul><ul><li>Recovery of risk appetite </li></ul></ul><ul><ul><li>Resurgence of portfolio flows to EMs – low returns in major markets </li></ul></ul><ul><ul><li>SSA role of FDI – less volatile than short-term flows </li></ul></ul>
  12. 12. But of course there are problems… <ul><li>Fiscal & Debt conditions </li></ul><ul><ul><li>Limited fiscal space </li></ul></ul><ul><ul><li>Needs to be carefully managed </li></ul></ul><ul><li>Partial but not full recovery in global demand </li></ul><ul><ul><li>Well below trend </li></ul></ul><ul><li>Employment & Incomes </li></ul><ul><ul><li>Rising unemployment </li></ul></ul><ul><ul><li>Household income squeeze </li></ul></ul><ul><li>Poverty alleviation/MDGs </li></ul><ul><ul><li>Setbacks/delayed achievement </li></ul></ul><ul><li>Fragile states </li></ul><ul><ul><li>Especially vulnerable </li></ul></ul>
  13. 13. Economic Outlook - SADC
  14. 14. Inflation: much reduced, not a major concern, allows monetary policy easing Source: IMF REO for SSA (April 2010) 46%
  15. 15. Real GDP growth – recession mostly avoided in 2009, strong recovery projected for 2010 Source: IMF Regional Economic Outlook, April 2010
  16. 16. Fiscal balance: some large deficits, esp. in SACU, but generally manageable
  17. 17. Current account: some large deficits, and dependence on capital inflows Source: IMF Regional Economic Outlook, April 2010
  18. 18. Reserves: some declines, but still comfortable in most countries Source: IMF Regional Economic Outlook, April 2010
  19. 19. Outlook & risks – world economy <ul><li>More positive than a year ago </li></ul><ul><ul><li>Worst fears of depression appear not to be realised </li></ul></ul><ul><ul><li>International recovery under way </li></ul></ul><ul><ul><li>Recovery in financial and commodity markets </li></ul></ul><ul><ul><li>BUT volatility and uncertainty still apparent in currencies, commodity markets </li></ul></ul><ul><ul><li>“ Double –dip” recession cannot be ruled out </li></ul></ul><ul><li>Medium-term outlook still uncertain </li></ul><ul><ul><li>End of inventory-driven upturn </li></ul></ul><ul><ul><li>Duration of impact of fiscal stimulus </li></ul></ul><ul><ul><li>Consumer confidence </li></ul></ul><ul><ul><li>Lagging impact of rising unemployment </li></ul></ul><ul><ul><li>Financial sector uncertainty – re-regulation </li></ul></ul><ul><ul><li>De-leveraging </li></ul></ul><ul><ul><li>Rising long-term interest rates & crowding out of private investment </li></ul></ul>
  20. 20. Outlook & risks …. SADC <ul><li>Positive </li></ul><ul><li>Africa growth should resume pre-crisis trajectory – helped by higher global growth </li></ul><ul><li>Resource rich – benefit from resumption of commodities boom </li></ul><ul><li>Focus can now change – from short-term output stabilisation to medium-term development challenges </li></ul><ul><li>Negative </li></ul><ul><li>Slow growth in Europe – major export market </li></ul><ul><li>Global growth – still vulnerable </li></ul><ul><li>Limited growth of donor resources, especially bilateral </li></ul><ul><li>Commodity price volatility </li></ul><ul><li>Slow progress on regional integration </li></ul><ul><li>Energy shortages </li></ul>
  21. 21. Implications for DFIs <ul><li>Finance is at the centre of attention </li></ul><ul><li>SADC financial systems generally stable </li></ul><ul><li>Recognition that markets and commercial FIs cannot achieve everything </li></ul><ul><li>Many African countries still by-passed by commercial flows </li></ul><ul><li>Banks still cautious </li></ul><ul><li>Recognition that particular development gaps exist – infrastructure, SMMEs, agriculture, unbanked – that may have to be filled by DFIs </li></ul><ul><li>Scope for more stable view of risk </li></ul><ul><li>Improving domestic bond markets </li></ul><ul><li>AfDB – AFMI </li></ul><ul><li>Government resources constrained </li></ul><ul><li>More resources from MFIs </li></ul><ul><li>Opportunities in new technologies & partnerships (MFIs, telcos, donors) </li></ul><ul><li>Regulation? </li></ul>
  22. 22. Thank You

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