US Credit crunch unlikely to affect Africa - the Economist

TSHIRELETSO MOTLOGELWA
Staff Writer | Thursday December 13, 2007 00:00

This is because economies in the sub-Saharan region are not directly integrated into the larger economy of the world.

The report, titled Heading For The Rocks: Will Financial Turmoil Sink The World Economy?, puts African economies at a much more immune stage compared to the economies of Europe, Asia and Latin America which are more closely linked to international financial markets.

 However, the report further warns that a sustained crisis may lead to a US recession.
The analysts further predict that a US recession would have knock-on effects on the major economies, subsequently leading to a reduced demand for the raw materials on whose demand these economies thrive.  African economies have been experiencing marked growth following on the growing demand for raw materials, especially in the rapidly developing economies of China and India.  'Continued robust demand for industrial raw materials will help other countries in the region, as will strong soft commodity prices (driven in part by demand for bio-fuels).

As a result, we expect GDP growth in the region to average just under 6 percent over the next two years,' the report states.  It warns that if the crisis is sustained for a long period, it might lead to a series of economic downward turns in many economies of the world and ultimately hurt the two major economies on the African continent, South Africa and Nigeria.

'The impact would be most apparent in 2008: weaker commodity prices, notably of crude oil (meaning a particularly difficult year for regional oil exporters), as well as cocoa, coffee, tea, copper, gold and platinum, would push South Africa and Nigeria towards economic contraction or even recession.  As these are sub-Saharan Africa's dominant economies, downturns here would have knock-on effects on the rest of the region,' the report warns.