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24.02.2005 Business & Finance

Global growth momentum to slow down

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Accra, Feb. 24, GNA - The global growth momentum is projected to slow down in 2005 and 2006 to an estimated 3.2 percent in each year due to dampening effects of volatile and high oil prices.

Other reasons for the slow down are the expected tightening of fiscal policies in the United States and Europe, rising interests rates as well as China's effort to bring growth down to a more sustainable pace and the devastating effect of the Indian Ocean tsunami, The Minister of Finance and Economic Planning, Mr Kwadwo Baah-Wiredu said on Thursday.

In his Budget to Parliament, he said headline inflation and interest rates in the advanced countries are expected to continue to rise in 2005 due to high volatility in oil prices and continued shifting of monetary policy by major central banks from an accommodation to a more neutral stance.

Non-fuel commodity prices are projected to fall in tandem with weaker global growth and demand in 2005 and oil-importing sub-Saharan African countries are likely to experience unfavourable terms of trade due to the negative income effects of projected high oil prices and falling prices of non-oil commodity.

He said financing requirements of the U.S. current account and fiscal deficits, and the renewed downward pressure on the US dollar are strong signals that long-term interest rates will continue to rise worldwide in 2005.

"Notwithstanding these seeming difficulties, improvements in macroeconomic fundamentals, falling debt levels, enhanced structural flexibility, stronger investment climate and further progress towards reduction in trade barriers will, if sustained, create the needed policy space for developing countries to achieve and sustain high growth levels.

"Consequently, GDP growth in sub-Saharan Africa is projected to improve marginally to 3.6 percent in 2005.

He noted that during 2004, oil prices were both high and volatile. Crude oil prices rose to historically high levels underpinned by a combination of surging global demand and geo-political supply-side concerns in some oil-exporting countries, including Iraq, Russia and Venezuela.

In contrast, non-fuel commodity prices, which rose substantially in early 2004, showed signs of easing partly on account of a slow down in growth in China - a significant consumer of some key commodities and intermediate products.

The Minister noted that the ECOWAS sub-region is full of contrast, with some member countries enjoying peace, stability and economic improvements, and others with internal conflicts and fragile economies.

The situation engaged the attention of Heads of Member States as peacekeeping measures have tendered to divert resources meant for economic development towards conflict resolution and management. He said it is heartening to indicate that since 2002, efforts have been intensified to overcome some of the challenges that have militated against the timely implementation of some protocols eg. the ECOWAS Trade Liberalization Scheme (ETLS).

These include steps to harmonize the ECOWAS and UEMOA liberalization schemes; the reviving of the community levy; simplification of procedures on the rules of origin and payment of compensation; and initiatives aimed at adopting and enforcing the UEMOA Common External Tariff (CET) regime for the whole of ECOWAS.

"Though we have not achieved the expected levels of progress in the implementation of the protocols, there is the will and the resolve to pursue their attainment."

Mr Baah-Wiredu said countries of the West African Monetary Zone (WAMZ) are expected to launch programmes in 2005 to implement the CET with a three-year transitional period to allow member States make the necessary adjustments for a successful and uniform implementation in 2008.

The ECOWAS Authority has also adopted the mandate for the negotiation of an Economic Partnership Agreement (EPA) between West Africa and the European Union leading to the progressive establishment of a reciprocal free trade zone between the two communities. The agreement would be for a period of 12 years, beginning from January 2008. It was also decided that the EPA should be used to deepen the integration process in the sub-region and promote speedy implementation of the ETLS.

On developments in the West African Monetary Zone (WAMZ), Mr Baah-Wiredu said the Authority of Heads of State and Government of the West African Monetary Zone (WAMZ), meeting in Conakry Guinea in September 2004, noted that significant progress had been made in meeting the convergence criteria but the level of convergence remained inadequate relative to the targets.

The Authority, while encouraging member countries to intensify efforts at strengthening macroeconomic and structural policy reforms, requested for a detailed study by the West African Monetary Institute (WAMI) to establish the state of preparedness and provide firm basis for the launch of the monetary union. This study is expected to be completed by March 2005.