Bank of Cape Verde expects economic growth slowdown to 5.5 percent

7 June 2006

Praia, Cape Verde, 07 June – The growth of Cape Verde’s economy is expected to slow down this year to between 5.0 percent and 5.5 percent, in the face of increased inflation and the budget deficit, the Bank of Cape Verde said.

In its half-yearly report to the government, presented at the end of last week, the central bank this year expects, “cool down of economic growth,“ against the 6.4 percent growth posted in 2005, “regardless of the more favorable contribution of net external demand, given the positive performance of exports in comparison to imports.”

The archipelago’s Gross Domestic Product is currently under pressure from “the slowdown in domestic demand, which reflects the behavior of consumption in general and public investment,” the bank said.

According to the bank’s projections, public investment should increase by 9.1 percent this year, 5 percentage points less than in 2005, while growth in private investment is expected to increase from 4.4 percent to 6.5 percent.

Private investment is projected to slow down this year, increasing by around 6.8 percent, or 1.6 percentage points less than in 2005.

The Bank of Cape Verde has projected an inflation rate of between 4 and 5 percent for this year driven by the rise in fuel prices and their repercussions on other sectors, particularly transport, and perhaps by “a potentially bad year for agriculture,” which will lead to an increase in the price of food, which has already been felt in recent month, according to figures from the national statistics institute.

Foreign demand is expected to continue to improve, especially due to exports of services, related to tourism.

In this scenario, the bank added, Cape Verde’s international reserves would continue to grow this year, reaching the equivalent of 3.6 months of imports.

The main risks to the economy, the bank said, are increased inflation, a rise in the public deficit and excess liquidity. (macauhub)