After Contraction, Liberia to Report Weak Growth in 2021, says Fitch
After contraction in 2020, Liberia is projected to report yet another weak growth in fiscal year 2021, says Fitch Solutions in Africa Monitor report.
The firm forecasts that Liberian real gross domestic product (GDP) will contract by 2.5% in 2020 due to ongoing fallout from the Covid-19 pandemic.
According to Fitch Solutions, the pandemic forced the Liberian government, like peers elsewhere, impose Covid-19 lockdown restrictions in the Q2-2020 which reduced global economic activity.
“While in 2016 – when real GDP contracted by 1.6% as a result of the Ebola epidemic in West Africa- the weakness of private consumption was partially cancelled out by robust exports.
“In 2020, this is not the case because the domestic crisis is happening against the backdrop of a larger global crisis”, Fitch Solutions explained.
The firm believes that Q2-2020 is likely to have marked the worst of the contraction, economic activity will remain subdued in the second half of the year due to constrained private consumption.
Lockdown measures imposed on April 10 were lifted on July 22, and the Central Bank of Liberia cut its key policy rate by 500 basis points to 25% at the end of May, which Fitch Solutions trust will support the recovery in the second half of 2020.
“That said, we believe that such measures will be insufficient to boost domestic demand.
“The loss of profits for domestic firms in Q220 will temper the pace of rehiring and wage growth, and in turn weigh on household incomes over the remainder of 2020”.
Fitch Solutions said in Africa Monitor report that higher unemployment and lower incomes will prompt households to put off larger purchases, which will limit credit uptake.
“We expect that unemployment will rise from 2.8% in 2019 to 4.9% in 2020 in the formal sector”
It was reported that in Liberia, credit growth slowed from 6.0% year on year in January to 1.1% in June, 2020.
Fitch Solutions forecasts that private consumption will subtract 1.0 percentage points away from headline growth.
Outlook to Improve In 2021, But Challenges Will Persist
Meanwhile, Fitch Solutions projects that Liberia’s economic growth will recover to 1.7% in 2021 as domestic and global demand improves.
It said an uptick in private consumption by 3.6%, as consumers gradually feel safer returning to market places and shopping malls, will feed through to higher business profits and investment.
“We expect that the contribution to headline growth from capital formation will increase from 0.5 percentage points (pps) in 2020 to 1.3pps in 2021”.
Meanwhile, the global economy is projected grow by 5.3% in 2021 – following a contraction of 4.1% over 2020 – as the roll out of a Covid-19 vaccine prompts the recovery of consumer and business activities worldwide.
However, experts think headwinds to Liberia’s iron ore mining sector, which accounts for 41.0% of total exports, will limit economic growth.
The report stated that inadequate infrastructure combined with weaker iron ore prices will keep iron ore production muted at 4.0% growth in 2021.
Fitch Solutions noted that its Mining team forecasts iron ore prices to decline from an average of USD100.0/ tonne in 2020 to USD90.0/tonne in 2021 as global supply increases and as Chinese demand starts to stabilise.
“This will limit Liberia’s export volumes and receipts.
“As such, we forecast that the contribution of exports to headline growth in 2021 will be muted at 0.6pps, keeping real GDP growth below its 2010-19 average of 3.9% and our 2021 forecast average of 3.6% for Sub-Saharan Africa”, Fitch Solutions noted.
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After Contraction, Liberia to Report Weak Growth in 2021, says Fitch
