{UAH} Pojim/WBK: World Bank downbeat about global economy, upbeat on EA - Comment - www.theeastafrican.co.ke

http://www.theeastafrican.co.ke/OpEd/comment/World-Bank-downbeat-about-global-economy--upbeat-on-EA/-/434750/2592462/-/11uv00rz/-/index.html

World Bank downbeat about global economy, upbeat on EA - Comment

By any measure, the global economy has had a distinctly bumpy start to 2015.

Economic weakness and deflation in Europe and Japan coupled with a sharp decline in oil prices that is expected to continue over the next six months, have sent investors running for cover, and economists taking a more pessimistic attitude towards economic performance in 2015.

In its biannual Global Economic Prospects report launched last week, the World Bank forecasts that the global economy will expand by 3 per cent this year, compared with an estimated 2.6 per cent in 2014.

Of the world's main economic powers over the past century, only the United States, which has a projected growth rate of 3.2 per cent in 2015, is punching at its weight. The European, Japanese and Russian economies are still teetering between anaemic growth and recession.

The forecast for 2015 is 0.5 per cent lower than the Bank originally predicted back in June.

"The global economy is running on a single engine... the American one," World Bank chief economist Kaushik Basu told reporters at a press conference on Tuesday, January 13. "This does not make for a rosy outlook for the world," he added.

Despite the choppy economic waters, sub-Saharan Africa, and particularly East African countries, were strong performers in 2014 and the Washington DC-based Bank expects things to stay that way.

Growth increased to 4.5 per cent in 2014, compared with 4.2 per cent in 2013. Sub-Saharan Africa will remain one of the world's fastest growing regions in 2015, fractionally up at 4.6 per cent. However, this is still 0.5 per cent lower than the World Bank predicted in June.

Among frontier market countries, growth is expected to increase in Kenya, boosted by higher public investment and the recovery of agriculture and tourism.

The Kenyan economy is expected to grow by 6 per cent in 2015, according to the World Bank report. However, it will be outstripped by Uganda, Tanzania and Rwanda, who will post growth rates of 6.5 per cent, 7.2 per cent and 6.5 per cent respectively.

Franziska Ohnsorge, the lead author of the Economic Prospects report, told The EastAfrican that the region's economies were "a bright spot" in the region, noting that countries benefited from a "reasonably good harvest and investment picked up."

Over the coming year, she argued, East Africa's non-oil producing countries will be the main beneficiaries of the price slump that has seen the price of Brent Crude oil fall from over $100 per barrel to under $50 in the six months since last July.

"One of the countries we really expect to benefit from the low oil price is Kenya," said Ohnsorge, adding that Kenya is among a handful of countries to have seen a large improvement in its trade balance over the past six months.

Drivers should expect lower prices at the petrol pumps, both the Tanzanian and Kenyan energy regulators have cut their country's fuel prices in the past week, while households should also benefit from a fall in energy prices.

However, Ohnsorge warned that the likes of Kenya and Uganda, which have begun the process of oil prospecting over the past 12 months, are likely to lose out on foreign investment if prices remain low for a sustained period.

‎"We think that oil prices will stay low and if that is the case then there is a good chance that oil prospecting projects will not happen," she said.

As a result, while the region's oil prospecting countries will enjoy the benefits of lower prices for the next two to three years, any increase in difficulty attracting investment to exploit the newfound oil reserves will start to cause pain by 2020.

For the rest of sub-Saharan Africa, the Bank believes that a sustained decline in oil prices will "on the whole, adversely affect the region, even though non-oil importers would gain. Oil exporters with a narrow economic base such as Angola and the Republic of Congo would be affected the most."

Elsewhere, conflicts in South Sudan and Central Africa Republic, and security concerns in northern Nigeria, and the Ebola epidemic will act as a drag on growth.

Meanwhile, the region will also have to balance the need for increased infrastructure investment with controlling budgets. The report notes that alongside an "urgent need across the region for structural reforms to increase potential output growth, an acute infrastructure deficit is evident, especially in energy and roads."

Consequently, Ohnsorge argued that governments must avoid issuing blank cheques.

"It is not just the amount of money but the efficiency that must be improved," she said, pointing to Kenya, Mozambique and Tanzania as examples of countries where "large infrastructure deficits to be reduced not only need a lot of money but more efficiency."

Despite recent pressure on regional currencies as a result of a resurgent dollar, the World Bank seems relatively sanguine about the effects on the region that would be caused by financial market upheaval, such as an increase in US interest rates and a further withdrawal of the Federal Reserve's monetary stimulus.

World Bank downbeat about global economy, upbeat on EA - Comment - www.theeastafrican.co.ke

http://www.theeastafrican.co.ke/OpEd/comment/World-Bank-downbeat-about-global-economy--upbeat-on-EA/-/434750/2592462/-/11uv00rz/-/index.html

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