World Bank Says Fed Tapering Could Threaten Africa’s Growth

Tighter global financing conditions, declining commodity prices and political unrest could weaken growth prospects in sub-Saharan Africa, according to the World Bank.

“The tapering of asset purchases by the Federal Reserve is expected to lead to a rise in base interest rates and spreads,” the Washington-based lender said in its Global Economic Prospects report released today. “South Africa, which has strong links with global financial markets, is particularly vulnerable to sudden stops of capital.”

South Africa relies on portfolio inflows to help finance the gap on its current account, which widened to 6.8 percent of gross domestic product in the third quarter. The Fed’s monetary stimulus program has also helped to prop up emerging-market currencies like the rand since 2009. Concern that it may be withdrawn helped push the South African currency down 19 percent against the dollar in 2013, the worst performer among 16 major currencies tracked by Bloomberg.

A protracted decline in commodity prices due to increased output and weaker demand could shave up to 3.8 percentage points off growth for oil exporters whose economies aren’t very diversified, like Angola and Gabon, the World Bank said.

The bank cut its growth estimate for the region for 2013 to 4.7 percent from 4.9 percent, and kept its forecast for this year unchanged at 5.3 percent. Excluding South Africa, it expects growth of 6.4 percent.

Nigeria Violence

Risks include the political instability in the Central African Republic, which could “deteriorate further with spillovers to neighboring countries,” while Nigeria’s battle against Islamist militants may also hurt economic growth, the World Bank said.

South Africa’s economy probably grew 1.9 percent last year, held back by labor disputes and weak demand for exports, the bank said. It predicts growth will accelerate to 2.7 percent this year and 3.4 percent in 2015.

To contact the reporter on this story: Rene Vollgraaff in Johannesburg at rvollgraaff@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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