Africa Set for Steady Growth, With Threat of Faster Inflation

Sub-Saharan Africa set to maintain growth pace in 2012, but risks higher

Emerging inflationary pressures warrant decisive action by policymakers

Focus of fiscal policies should shift from short- to medium-term considerations

In many of Africa’s low-income countries, growth is also being boosted by domestic demand and by adding value to exports.

But the IMF’s Regional Economic Outlook for sub-Saharan Africa also cautioned that consumer price inflation is speeding up across the region, and that tighter monetary policy may be needed in some countries to head off inflation expectations. Fiscal policy may need to support tighter monetary conditions by focusing more on the medium term, the report said.

The outlook, released October 19, estimates that sub-Saharan Africa will grow by 5¼ percent in 2011 and 5¾ percent in 2012. However, this projection assumes that the global economy will regain some of its momentum in the coming months. If not, then Africa will not be immune and growth could falter.

In background studies published in the outlook, the IMF also highlights the quality and breadth of the region’s recent growth episode. These studies point to rising consumption of the poorest households, especially in countries where growth has been sustained at high levels, and the opportunities for intensifying trade with new growth markets.

Export-led growth

Supportive monetary and fiscal policies helped the region weather the 2009 global crisis in 2009 and set it on a recovery path for 2011 and 2012. Economic activity has also been driven by higher commodity prices and increased export demand, although to a varying extent across country groupings.

In many of sub-Saharan Africa’s low-income countries, growth is being supported by buoyant domestic demand along with export diversification into higher–value added production and to fast-growing emerging markets. However, higher food and fuel prices are bringing considerable difficulties, especially for the urban poor, and drought in the Horn of Africa is imposing untold hardships on households in that region.

For oil- and other resource-exporting countries, strong commodity prices are helping to support growth, the terms of trade, and foreign exchange reserves. For example, oil exporters are expected to grow b y 6 percent in 2011 and 7 percent in 2012, above the regional average.

The picture is less rosy for some middle income countries, including South Africa, which have been more exposed to...