Sub-Saharan Africa's economy expected to contract by 3.2 percent

Sub-Saharan Africa's economy is projected to contract by 3.2 percent in 2020, markedly worse than the 1.6 percent contraction anticipated in April, according to the International Monetary Fund's latest Regional Economic Outlook for the region.

The contraction reflects a weaker external environment and measures to contain the coronavirus outbreak, which have been accelerating in the past few weeks in several sub-Saharan African countries.

IMF projects growth to recover to 3.4 percent in 2021 subject to the continued gradual easing of restrictions that have started in recent weeks and, importantly, if the region avoids the same epidemic dynamics that have played out elsewhere.

Growth is expected to fall the most in tourism-dependent and resource-intensive countries. Growth in non-resource intensive countries is expected to come to a near standstill.

On average, per capita incomes across the region will fall by 7 percent relative to expected levels back in October 2019 and close to levels seen nearly a decade ago, IMF said.

In South Africa, economic activity is projected to contract by 8 percent in 2020, 2.2 percentage points deeper compared to April 2020.

The economy is projected to rebound by 3.5 percent in 2021 on the back of improving business activity and confidence as the authorities make progress in implementing policies to boost growth and stabilize public debt.

In Nigeria, the economic contraction is projected to deepen to 5.4 percent in 2020, down by 2.0 percentage points from the April 2020 Regional Economic Outlook, as the country was hit hard by plummeting oil prices, lower oil production quota and declining activity.

Growth is projected to recover to 2.6 percent in 2021 with rising oil prices and increasing production.

The economic outlook report said the coronavirus pandemic is likely to cause the first increase in global poverty since 1998, when the Asian crisis hit.

According to World Bank estimates, in Sub-Saharan Africa, the pandemic could push about 26 million more people into extreme poverty in 2020, and up to 39 million in case downside risks to growth materializes.

At the same time, income inequality is expected to increase, as lockdowns disproportionally affected informal sector workers and small- and medium-sized companies in the services sector.

"This is a fast-moving crisis, and recent developments suggest that the downturn will be significantly larger than we had anticipated only 10 weeks ago," Abebe Aemro Selassie, the director of the IMF's African Department, said.

"The risks we highlighted in April all continue to be a concern, but the deterioration of the global outlook has been particularly striking."

Selassie said the growth rate of new cases has slowed slightly since April, and a number of countries have cautiously eased some of their containment measures.

"However, region-wide, the pandemic is still in its exponential phase. Sub-Saharan Africa has recently exceeded more than a quarter of a million confirmed cases, and new cases are still doubling every two to three weeks," he said.

"Given the region's already-stretched healthcare capacity, the immediate priority is still to protect lives and to do whatever it takes to strengthen local health systems and contain the outbreak."

Against this backdrop, Selassie pointed to a number of policy priorities going forward. He said the immediate priority remains the preservation of health and lives.

Selassie said as the region starts to recover, authorities should gradually shift from broad fiscal support to more affordable, targeted policies, concentrating in particular on the poorest households and those sectors hit hardest by the crisis.

Once the crisis has waned, he said countries should refocus their attention on transforming their economies, creating jobs, and boosting living standards, clawing back some of the ground lost during the current crisis.

"Nonetheless, more international support is needed urgently. This year alone, countries in the region face additional financing needs of over $110 billion, $44 billion of which is yet to be financed," Selassie said.