AFD // 2021 Universal Registration Document

1

PRESENTATION OF AFD

Activities of the Agence Française de Développement Group in 2021

OUTLOOK FOR 2022 At the start of 2022, there are many obstacles to the expected normalisation of the economic situation in emerging and developing countries (EDCs) and to their return to pre-Covid-19 crisis trends. The rapid spread of the Omicron variant is likely to extend the impact of the pandemic in several countries, such as in China, for example. Furthermore, the effects of the war in Ukraine will jeopardise the recovery of the global economy. The latest IMF forecasts (April 2022) have revised global growth for 2022 downwards, to 3.5% (-0.9 pp). On average, advanced, emerging and developing economies are expected to experience slowdowns compared to 2021, with emerging and developing Europe in particular expected to experience a significant recession (-3.8%), due to recessions projected in Ukraine (-35%), Russia (-11%) and Belarus (-6.4%). Emerging and developing Asia should remain the most dynamic region (+5.4%), despite the Chinese slowdown due to the difficulties of the real estate sector, the energy crisis and a restrictive zero-Covid strategy. On the other hand, Latin America should see its growth slow significantly, to +2.6%, mainly due to less favourable outlooks in Brazil (impact of the monetary tightening on consumption) and in Mexico (additional impact of the reduced dynamism in the US on external demand). African growth should also be particularly sluggish, at +3.8%, despite high commodity prices. In the medium term, the drop in vaccination coverage in many EDCs (notably in Africa) increases the likelihood of new viral mutations, even if this is offset by lower mortality than in the rest of the world. The rise in inflation, including after excluding energy and food prices, is also more marked and more lasting than expected. The fact that it will remain high, at least during a large part of

2022, will weigh on growth through its impact on consumption. This recessionary effect should be amplified by the tightening of monetary policies in several emerging countries, notably in Latin America. In order not to erode their credibility, several Central Banks were forced to react quickly, by raising their key rates, to higher-than-targeted inflation, even though these countries experienced major recessions in 2020 and employment has not returned to its pre-crisis level. In addition, low-income countries such as those in North Africa and the Middle East are particularly affected by the increase in food prices, exacerbated by the war in Ukraine and its impact on cereal prices (wheat, corn). The external balances of net hydrocarbon-exporting countries, on the other hand, should benefit from the increase in prices. Lastly, the accelerated normalisation of monetary policy in advanced economies, in the United States in particular, is likely to have an impact on developing countries, through the tightening of international financial conditions. While acute financing problems remain very localised at this stage, some countries, which benefited from a relatively high appetite for risk worldwide, are now seeing their spreads widen again and, for the vast majority of EDCs, these are still higher than their December ɸ 2019 levels. The concomitant appreciation of the US ɸ dollar poses an additional risk to EDCs that are heavily indebted in this currency. In a context of a general increase in debt ratios, the fiscal policy of EDCs should also remain prudent this year, owing to the pressure to reduce budget deficits and the persistence of the effects of the crisis in terms of employment and purchasing power on vulnerable populations, exacerbated by rising energy and food prices. In several countries, the year’s elections could complicate the budgetary equation by exacerbating socio-political tensions.

22

www.afd.fr

2021 UNIVERSAL REGISTRATION DOCUMENT