European instability could hamper growth in emerging markets, IMF

The International Monetary Fund (IMF) sees South Africa as the key driver for growth in the African continent but was quick to raise concerns about the country’s high unemployment levels. This came out at a recent IMF convention attended by STANLIB’s Chief Economist Kevin Lings.

A key recommendation was that South Africa must increase investment into infrastructure that supports business growth. If the country aims to grow the economy at above average rates, investments into rail infrastructure will have to be increased along with port capacity.

The IMF noted that emerging markets have sustained growth levels despite negativity in the markets. Lings pointed out that emerging economies are seen as engines of growth hence, countries such as Brazil, India and China will continue to shape the agenda in global economic affairs.

“The Eurozone economic crisis has destabilised the global economy, growth levels in developed economies remains subdued. There is, however, a realisation among Europe’s power houses that robust economic restructuring needs to be implemented. While implementation may take time, there’s a need for greater centralisation of the expenditure of governments across the region.” said Lings

The structural problems in the US economy coupled with the European crisis are likely to suppress economic performance even further, unless aggressive remedial action is taken. The markets will remain volatile for much of the foreseeable future as investor sentiment remains apprehensive across the world’s advanced economies.

“If Europe goes into a full recession all emerging economies, including South Africa, will suffer and for this reason emerging economies have been involved in dialogues to try and find solutions.” added Lings.

According to Lings, South Africa will have to bolster efforts to improve small business, because a competitive SMME sector will absorb large numbers of the unemployed into the mainstream economy and in so doing grow the economy.

The global investor market remains optimistic about Africa, the continent recorded above average growth levels in the last 10 years, mainly driven by demand for commodities in the East. Lings said there was doubt if the growth levels could be sustained amid shrinking growth levels in the global economy. There is some optimism about the continent, but corruption and a lack of investment into education could cause regression in achievements made thus far.

-ENDS-

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