AFD_REGISTRATION_DOCUMENT_2017

1 PRESENTATION OF AFD

Activities of agence française debdeveloppement group in 2017

1.5 ACTIVITIES OF

In 2017, emerging and developing Asia remained the region in the world with the strongest economic growth at 6.5%. Chinese growth accelerated to 6.8%, influenced by the recovery of global trade, government support policies, notably with continued investment expenditure, and a healthy property sector. Many countries in the region benefited from China’s dynamic growth and the recovery in Europe. India, on the other hand, saw its growth slow to 6.7%. Latin America was back on the road to growth in 2017 (1.3%), driven primarily by the gradual recovery of Brazil, which accounts for more than a third of the region’s GDP. The terms of trade shock continued to have a negative impact on net exporters of raw materials in the region. In the medium term, growth in per-capita GDP remained low at 1.7%, well below the 3.25% recorded for the other emerging and developing countries. After two years of recession, Brazil recorded growth of 1.1% in 2017, thanks to a good harvest and a recovery of household consumption. Argentina also came out of recession in 2017bto record growth of 2.8%, sustained by public investment and household consumption, the Macri government having launched an ambitious programme of reforms to restore the country’s macroeconomic equilibrium. Despite the uncertainty surrounding the possible renegotiation of the ALENA and the tightening of its monetary policy, economic activity in Mexico remained buoyant in 2017bwith 2% growth. Trends in the economic environment in the countries in which AFD operates in the south and east of the Mediterranean were still mixed in 2017. In Turkey, growth accelerated to 6.7% thanks to an expansionist budget policy. In Tunisia, the relatively calm security situation and a lessening of the social tensions in the mining industry saw the country return to growth in 2017 (2%), bolstered by phosphates, tourism and the off-shore sector. However, the ambitious structural reform and budget adjustment programme, agreed with the IMF in May 2016, continued to hit obstacles to its implementation and the net reserves of the Tunisian central bank recently fell below 90bdays. Egypt, on the other hand, began to benefit from the reforms introduced as part of its IMF programme and its growth accelerated to 4.4% (2018bbudget year). The depreciation of the Egyptian Pound impacted positively on exports and the country saw an improvement in its foreign currency liquidity with the adoption of a floating exchange rate policy. Morocco and Jordan continued to benefit from a positive terms of trade shock and from reforms adopted in their energy sector. The economic situation in Sub-Saharan Africa remained difficult despite a slight improvement in the region’s growth in 2017 (2.7%) compared to 2016 (1.4%). The factors behind this were essentially idiosyncratic (increased oil production in Nigeria and mitigation of the drought in east and southern Africa). This improvement nudged per-capita GDP into positive figures. Even in the countries where growth remained high, it was still greatly dependent on public investment, often at the expense of increasing debt and private sector eviction. In almost half of the countries in the region, the public debt to GDP ratio was over 50%. According to the IMF, Nigeria came out of recession in 2017bwith 0.8% growth, thanks to a recovery of its oil production and a healthy agricultural industry. South Africa still faced a difficult economic situation in 2017, with growth of 0.9%. With

AGENCE FRANÇAISE DEbDEVELOPPEMENT GROUP IN 2017

1.5.1 Global economy The global economic recovery, which had begun in the second half of 2016, gained momentum in 2017, driven by a revival of investment, industrial production and world trade. According to the IMF, 2017bworldwide growth was 3.7%. In America, economic growth reached 2.3% while the unemployment rate reached 4.1%, its lowest level since 2001. However, wages showed no signs of acceleration, hindering the recovery of inflation, which remained below the targeted 2% of the American Federal Reserve. The country’s potential medium- term growth is estimated at 1.8% taking into account an ageing population and anticipated low productivity gains. Having ended its large-scale asset purchases in October 2014band, in December 2015, increased its key lending rates, the US Federal Reserve continued to tighten its monetary policy in 2017bwith three further increases of its key lending rates in March, June and December, of between 1.25 and 1.5%. In addition, in October 2017bthe Federal Reserve began to shrink its balance sheet by only reinvesting some of its shares which had reached maturity. In 2017, economic activity in the Euro zone grew by around 2.4%, its highest rate for a decade according to European Commission estimates. The recovery was enjoyed by all Euro zone countries and was driven by resilient private consumption, improved global growth and the fall in unemployment. Investment also recovered, thanks to favourable financing conditions and a calmer economic climate once political uncertainties had vanished. Unemployment was an average of 8.7%, its lowest level since 2009. Despite healthy growth and the improved employment market, underlying inflation, which excludes the price of energy and unprocessed food, remained at a moderate 1.4%. Public debt was 88.1% of the Euro zone’s GDP as at the end of September 2017. In the UK, activity growth slowed to 1.7% in 2017bdue to a slowdown in household consumption, which was hit badly by the depreciation of the Pound Sterling and inflation in excess of the increase in nominal wages. In Japan, growth accelerated to 1.8% in 2017, sustained by stronger worldwide demand and a generous budget policy. In the medium term, because of the fall in the working population, the country’s growth potential should be very low. Emerging and developing countries represent 58% of global GDP (1) . China’s weight in the emerging world is becoming increasingly significant, accounting for 30.5% of the GDP of the emerging and developing countries (compared to 12.4% for India, the second most important country). In addition, economic developments in China increasingly influence other emerging economies through a real mechanism of financial contagion (China has become the leading trading partner of many developing countries).

(1) Calculation of the respective shares of the aggregate GDP is based on GDP at purchasing power parity, according to the method selected by the IMF in its World Economic Outlook.

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REGISTRATION DOCUMENT 2017

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