Global growth remains weak – CBL

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CBL governor Dr. Retṧelisitsoe Matlanyane
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By Kefiloe Kajane

The Central Bank of Lesotho (CBL) says the global growth prospects remain weak, uneven and largely dependent on the course of the virus and country progress in vaccinations.

The CBL governor Retṧelisitsoe Matlanyane indicated that in its January 2021 World Economic Outlook Update, the International Monetary Fund (IMF) is forecasting global growth for 2021 to be 5.5 per cent, from 5.2 per cent that was forecast in October 2020. She said similarly, the sub-Saharan Africa region is expected to grow by 3.2 per cent in 2021, an upward revision of 0.1 per cent from the October 2020 forecast.

She further explained that global economic activity was uneven during the fourth quarter of 2020, especially among advanced and emerging market economies. She also said that in the Euro Area, real GDP contracted by 5.1 per cent in the fourth quarter, after a decline of 5.0 per cent in the third quarter.

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“US real GDP declined at the annual rate of 2.5 per cent, compared to a 2.8 per cent decline in the third quarter. In Japan, real GDP contracted by 1.2 per cent in the fourth quarter of 2020, relative to a decline of 5.8 per cent in the third quarter. The fourth quarter real GDP in the UK contracted by 7.8 per cent annually, a slight improvement from a decline of 8.7 per cent in the third quarter of 2020. In emerging market economies, China realized an annual real GDP growth of 6.5 per cent in the fourth quarter, compared to 4.9 per cent in the third quarter.

Economic activity also rebounded in India in the fourth quarter of 2020, increasing by 0.4 per cent relative to a decline of 7.3 per cent in the third quarter. In contrast, in South Africa, real GDP declined by 4.1 per cent after declining by 6.2 per cent in the preceding quarter. Global labour market developments remained susceptible to downside risks, largely due to some increases in the virus and associated infection control measures.

“On price developments, positive inflation rates were reported in the US, UK, China, India and South Africa in the fourth quarter of 2020; while deflation (negative inflation rates) were realized in the Euro Area and Japan. The monetary policy stance across advanced economies remained accommodative, with policy rates in the US, the Euro Area and UK kept close to zero. Global financial markets reflected mixed signs of volatility and easing market risk,” Matlanyane said.

She also pointed that this came in light of further economic recovery and support measures and strides in global rollouts of the Covid-19 vaccine. Yields in emerging markets, especially South Africa, barely changed and remained subdued on the short and long end.

She said however, investors were net buyers of South African assets, with positive risk sentiment outweighing concerns emanating from negative debt developments.

“The rand is expected to remain range bound, with high downside risks and volatility. The CBL’s Monthly Indicator of Economic Activity (MIEA) reflects that economic activity declined by 5.5. per cent in January 2021, relative to a 4.6 per cent growth in December 2020. This was mainly as the result of the reintroduction of Covid-19 induced restrictions in the review month. The domestic economy is projected to contract by a revised 6.1 per cent in 2020, due to the economic fallout of the Covid-19 pandemic. The 2020 output contraction is expected to be broad based and led by a prolonged period of low economic,” she said.