The pandemic threatens gains

The coronavirus crisis is threatening to undo the gains the world has achieved over the last decades both in the areas of trade and economic growth. After expanding by 2.9% in 2019 global growth is forecast to contract by 4.4% in 2020, significantly much worse than the level of output contraction recorded a decade ago after the global financial crisis. In a context of a synchronised global downturn Africa is set to experience its first recession in a quarter century. Likewise, the World Trade Organisation predicts global trade could contract by 9.2% this year; and the contraction is expected across all regions of the world, including Africa, which will primarily be affected by weaker commodity prices and shrinking global demand. Africa remains the most commodity-dependent region of the world and as such containment measures implemented to stem the spread of the Covid-19 virus depressed global demand, leading to supply shocks triggered by a sharp drop in commodity prices as illustrated by the dynamics of Afreximbank African Commodity Index below. However, forecasts point to a strong and synchronised global recovery next year, with global GDP expanding by over 5% and aggregate output expanding by just as much across Africa. The forecast recovery reflects both progress regarding understanding and treatment of Covid-19 as well as prevention following breakthrough in the development of vaccines. But the strong and synchronised forecast global recovery also reflects the scale of policy responses which have been swift, bold, and coordinated. Through counter-cyclical measures most governments and multilateral development finance institutions have drawn up large monetary and fiscal stimulus plans to support economic recovery post-containment phase. Under the G20 Debt Service Suspension Initiative (DSSI) the international community has provided relief to most affected emerging developing market economies, freeing up scarce financial resources that can be directed to address the socioeconomic fallout from Covid-19. For instance, Afreximbank’s $3bn Pandemic Trade Impact Mitigation Facility is providing much-needed liquidity support to trade payments falling due. It is assisting member countries whose fiscal revenues are tied to specific export sectors and/or commodities to manage the sudden revenue declines as a result of a collapse in global demand and commodity prices.