Bloomberg News

Africa Economic Growth Can Weather Europe Crisis, Moody’s Says

September 25, 2012

African economies will probably cope with the fallout from Europe’s debt crisis because governments created the room for fiscal expansion and to raise more international debt, Moody’s (MCO:US) Investors Service said.

Africa’s gross domestic product is forecast to expand an average 6 percent a year for the next five years if Europe, the largest trading partner, records 0 percent to 2 percent annual growth, Moody’s said in an e-mailed statement today.

“Despite the risks, we believe that there is a sustainable growth story in Africa and, in general, expect the trend of improving economic strength and creditworthiness in the region to continue,” Moody’s said, according to the report.

African economies demonstrated resilience during the 2008-2009 global financial crisis because many nations had the space to provide fiscal stimulus, Moody’s said. The region may again have the flexibility to combat a global downturn as debt will probably stay at “sustainable” levels and economic growth is accelerating, it said.

Governments in Africa may need to boost borrowing on international credit markets to fund infrastructure plans to help boost growth over the longer term, Moody’s said. Higher sovereign-bond sales may encourage corporate borrowing, it said.

Under Pressure

“Access to new resources will be crucial” it said. “International issuance, first by Africa’s sovereigns followed by banks and utilities, are likely to be strategies adopted over time in order to access long-term finance and reduce the region’s reliance on European capital and bank financing.” European lenders are the main source of “external liquidity” to Africa’s banking system, according to the report.

African economies will come under pressure if financial conditions in Europe deteriorate, according to the report. North Africa may be the hardest hit because half of its trade is with Europe and it’s still recovering from political unrest, it said. Only about 15 percent of exports from East Africa are sold to European Union nations, Moody’s said.

Other factors that may affect Africa’s performance include volatility in commodity prices and reduced appetite for risk by investors, it said.

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net

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


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Companies Mentioned

  • MCO
    (Moody's Corp)
    • $90.13 USD
    • -0.87
    • -0.97%
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