The African Development Bank has lowered its economic growth forecast for Africa in 2023 and 2024 to 3.4% and 3.8%, respectively. This is down from its previous forecast of 4.0% and 4.3%.
The revision reflects the ongoing impact of the COVID-19 pandemic, geopolitical tensions, climate shocks, and a global economic slowdown. These factors have limited African governments’ ability to respond to shocks and sustain post-pandemic economic recovery gains.
Inflation remains a major concern in Africa, with the Bank now projecting an average inflation rate of 18.5% in 2023 and 17.1% in 2024. This is up from its previous forecast of 13.3% and 12.1%.
The high inflation rate is eroding purchasing power and stoking poverty. It is also making it more difficult for governments to implement policies to boost economic growth.
In the short term, the Bank recommends that African countries continue to implement restrictive monetary policies to contain inflation. This should be complemented by fiscal policies that promote economic diversification and remove supply-side constraints.
Over the medium to long term, the Bank calls for increased investment in human capital and physical infrastructure. This will boost productivity, regain momentum in economic growth, and create opportunities for more inclusive and sustainable development.
The Bank also notes that the global economic slowdown is impacting demand for Africa’s exports. This is likely to persist for longer than previously anticipated.
The slowdown in advanced economies and lackluster growth in China are also weighing on global growth. This is putting additional strain on African countries, especially those dependent on the Chinese market for commodity exports.
The Bank urges African countries to diversify their economies and reduce their dependence on commodity exports. They should also strengthen their social safety nets to protect the most vulnerable from the effects of shocks.
The Bank also notes that climate shocks and geopolitical tensions could lead to further disruptions in global trade and foreign investment flows. This could exacerbate the funding squeeze facing African countries.
The Bank recommends that African countries coordinate their monetary and fiscal policies to rebuild buffers against shocks. They should also invest in addressing supply constraints and boosting labor productivity.
Tackling impediments to increased domestic resource mobilization will help address the current funding squeeze. African countries should also explore innovative financing mechanisms to mobilize more resources for development.