1.25 Contribution to GDP Growth, Demand Side

On the expenditure side, the recovery was supported by private consumption and weak investment growth; it was held back by the performance of net exports. 3

the poverty line. Taken together, Russia and Ukraine represent less than 2 percent of world trade, which suggests that the direct impact through trade linkages is expected to be limited. Nevertheless, the indirect impact is expected to be substantial, but it will affect the subregions in Sub-Saharan Africa differently. The RussiaUkraine conflict poses additional challenges to the recovery of net commodity importing countries but offers opportunities for net exporters. Resourcerich countries could benefit from rising commodity prices to replenish reserves that were exhausted during the 2020 recession. However, negative terms of trade will pose a threat to net importers of oil and food commodities, due to the further rise in inflation.

FIGURE 1.25: Contribution to GDP Growth, Demand Side (% points) 5 4 2 Percent 1 0 -1 -2 -3 2015 2016 2017 2018 2019 2020 2021e Government consumption Private consumption Gross xed investment Net exports Source: World Bank staff projections. Note: Change in inventories and statistical discrepancy are not displayed. e=estimate; GDP = gross domestic product. As a result of negative supply shocks that predated the Russia-Ukraine war, stagflation is posing challenges to monetary policy making. Central banks are facing a trade-off between accommodating the weak economy with the risk of exacerbating inflationary prospects and fighting inflation at the high cost of triggering a recession. Many central banks in the region have chosen the second policy option so far and embarked on a tightening cycle, but others have maintained a more dovish stance. The number of the central banks hiking policy rates is on the rise as a reaction to monetary policy normalization in advanced economies, specifically in the United States. Attempting to curb inflation arising from supply shocks with monetary policy might be ineffective, especially in the case of most African countries, which are characterized by underdeveloped financial sectors and important informal sectors. Inflation will more likely remain elevated while output will contract. Elevated inflation adds uncertainty above the lingering effects of the COVID-19 crisis, which the region is struggling to mitigate, exacerbating inequality between rich and poor countries. In addition, rising insecurity and conflicts in the Sahel region (Burkina Faso, Chad, Mali, Mauritania, Niger, and northeastern Nigeria) could hamper the strong recovery seen in most West African Economic and Monetary Union (WAEMU) countries, while creating instability in the entire subregion. The scarring effects induced by the COVID-19 pandemic combined with climate-related issues present long-term risks to the outlook for Sub-Saharan African economies, constraining the region from reaching the twin goals of ending poverty and achieving shared prosperity. Yet, the region can seize this opportunity of rising commodity prices to strengthen resilience to

Real GDP growth