Rwanda Economic Update, July 2012

Abstract

Rwanda grew at a rapid rate in the second half of 2011, exceeding 10 percent for the first time, since the 2009 global economic downturn. Overall, Rwanda achieved 8.6 percent growth in 2011, and substantially exceeded the average growth for Sub- Saharan Africa (SSA) of 5.0 percent. Rwanda also grew fastest than all the countries in the East African Community (EAC), which as a group reached 6.1 percent in 2011. Robust growth continued in the first quarter of 2012, when Rwanda's economy expanded at 7.7 percent. Renewed concerns over the global growth outlook and of the European debt crisis, might negatively affect Rwanda's prospects in 2012/2013, and lead to a lower growth turn-out compared to 2011. First quarter growth in 2012 remained overall robust, but showed considerable weakness in the industry sector. This was in contrast to what was observed in the second half of 2011, when industrial growth led by buoyant construction, and mining activities pushed the sector to the top, ahead of services. In the second half of 2011, Rwanda's growth momentum accelerated largely led by thriving non-tradable goods and services sectors while the manufacturing sector continued to be sluggish. The Rwandan economy expanded by 10.8 percent during the second half of 2011, but manufacturing only contributed 0.5 percentage points to this growth outcome. Agricultural output took a leap in the second half, mainly due to a very good second harvest season outcome. Overall, growth turn-out for 2011 stood at 8.6 percent, up from 7.2 percent in 2010. Inflationary pressures reappeared in tandem with high international food and fuel prices. The small policy response came with a delay, not enough to prevent core inflation reaching its highest level since mid-2009. Core inflation exceeded headline inflation for the whole second half of 2011. The current account deficit broadened in 2011. Rwanda's export performed robustly, benefiting from high international prices, but could not keep up with the increasing import bill, leading to a further deterioration in the trade balance. For 2012, Rwanda's economy is expected to continue to grow slower than it did in 2011, but at a healthy pace. The industrial sector is likely to expand less than in 2011 and growth in the services sector is expected to be more moderate, both on account of a more risky global environment.