A ‘hard landing’ of the Chinese economy would have a significant impact on major African economies, but the size and timing would differ from country to country, according to Fitch Ratings. Earlier this month, the credit ratings agency (CRA) said that a hard landing in China was not its base case.
Using the alternative scenario analysis from its recently-issued ‘Global Economic Outlook’, where a series of shocks to the Chinese economy slow Chinese growth by 3 percentage points (pp) in 2013 and 1pp in 2014, Fitch’s model shows African real gross domestic product (GDP) growth slowing by an accumulated 0.9pp compared with the CRA’s baseline forecast in 2013 and 2014, to an average of 4.6% a year in each year.
Trade is the main channel through which the effects of a Chinese hard landing would be felt. For example, 18% of South Africa’s exports are to China. The model shows South African growth falling by 0.2pp in 2013 and 0.7pp in 2014 versus Fitch’s baseline. The impact may be greater in the second year of the scenario when the full effect of the hard landing is felt in Europe (about a quarter of South Africa’s exports go to the European Union).
Of the five African countries it modelled, Fitch believes Uganda is the best insulated. Its trade openness is relatively low, with exports amounting to less than 15% of GDP, and exports to China are only around 0.2% of GDP. Ugandan growth slows by 0.2pp in 2013 in the alternative scenario, but is slightly higher in 2014, possibly due to the benefits of lower commodity prices. Countries with substantial commodity exports to China – notably Zambia and Angola – would suffer the most from lower commodity prices.
The economic relationship between China and Africa was one of the topics discussed at Fitch’s ‘Africa – Bright Spot in a Gloomy World’ event held in London on 7 December.
Fitch maintained a 7.8% forecast for China’s GDP growth in 2012 in the Global Economic Outlook. Looser credit is contributing to a re-acceleration of the economy in Q4, and the CRA expects modest monetary and public-investment stimulus to support growth of around 8% in 2013. In the medium term, China faces a challenging transition towards a more consumption-led growth model.
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