Sub-Saharan Africa's 2016 & 2017 growth rates
Sub-Saharan Africa economies have been hit by low prices for raw materials and multiple domestic challenges this year. Our panel of analysts downgraded the region’s outlook for the fourth consecutive month and they now expect the economy to expand 2.0% in 2016 and 3.6% next year.
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Angola remains mired in a deep state of fiscal distress, suffering lackluster performance in its all-important oil sector. Dwindling oil revenues have severely affected the public and external accounts, while government debt has surged on the back of increased borrowing costs. In addition, lower oil earnings have translated into a plunge of foreign currency inflows and prompted the Central Bank to devaluate the kwanza against the U.S. dollar multiple times. The weak currency has been hampering economic performance in import-dependent sectors and prompting inflation to soar. On 5 September, President José Eduardo dos Santos replaced Finance Minister Armando Manuel with Archer Mangueira, a well-known face to international investors as the head of Angola’s Capital Markets Commission. The decision came after talks with the IMF regarding medium-term funding stalled in July over the conditions the loan would be subject to, which were supported by the former finance minister but rejected by other senior figures in the government.
As oil revenues constitute approximately 95% of exports and over 66% of fiscal revenues, the country’s growth prospects will remain grim as long as oil prices stay subdued. Analysts expect GDP to grow 1.6% in 2016, which is down 0.2 percentage points from last month’s forecast. In 2017, they see the economy growing 2.6%.
Ghana’s economic recovery, which started in Q4 2015, continued in the first quarter this year, putting the country back on a growth path after the substantial deceleration recorded in Q3 2015. On 2 September, the IMF concluded its mission to consider whether to release the third tranche of the Extended Credit Facility program, totaling almost USD 1 billion, though the final decision remains pending. It stated that constructive discussions were held with local authorities but that it remained concerned about the recent amendment to the Bank of Ghana Act passed by Parliament in early August. Lawmakers allowed the government to borrow up to a ceiling of 5% of the previous year’s total revenue (down from 11% previously) from the Central Bank to finance its deficit, which contrasted the IMF’s demand for zero Central Bank financing. Moreover, the government tapped the Eurobond market early this month and raised USD 750 million at a relatively good price due to high demand from international investors.
The increase in energy production and the implementation of important infrastructure projects are expected to alleviate the energy crisis and bolster economic growth in 2016. However, the difficult fiscal situation is clouding the outlook. Analysts expect the economy to grow 4.1% in 2016, which is down 0.1 percentage points from last month’s forecast. The panel forecasts growth of 6.3% in 2017.
Kenya’s economy expanded a solid 5.9% in Q1 and likely continued on a robust growth track thereafter. Growth is being sustained by several infrastructure projects, including a new container terminal at the Mombasa port that is expected to increase its cargo capacity by 50%, which is also crucial for Kenya’s plan to become an oil producer and exporter in 2017. Increased tea output in H1, coupled with the ongoing recovery in the tourism sector, is supporting exports and foreign reserves. That said, September’s reintroduction of an interest rate cap, which limits how much lenders can charge for loans, risks hampering growth in the medium term as it might curb lending and investment. In the political arena, September’s approval of an electoral reform—which allows the replacement of current election officials and the audit of votes by an independent organization—eases the risk of a violent and dubious general election scheduled for next year.
Kenya’s outlook is rosy and the country is set for a fast expansion this year, mainly thanks to infrastructure development, even though insecurity associated with terrorism and huge twin deficits still bear risks. Our panelists see GDP growing 6.0% this year, which is up 0.1 percentage points from last month's forecast. Next year, the panel expects GDP growth to slow to 5.9%.
Economic and financial distress are mounting as Mozambique continues to suffer from a debt crisis and the suspension of international aid flows. GDP grew only 3.7% in Q2—the smallest expansion in eight years—the metical has lost over 50% of its value against the U.S. dollar since January, and foreign debt is soaring. In an effort to restore international credibility after the undisclosed debt scandal, Rogério Zandamela, a former senior IMF official, was appointed as new Central Bank governor. The IMF, which is expected to review Mozambique in late September, is requesting an external forensic audit of Mozambique’s public debt as precondition to restart financial aid to the country. In the political landscape, tensions between the government and the main opposition Renamo remained high, despite the planned continuation of peace talks.
Reduced international aid, weak investment and tighter monetary and fiscal policy will drag on economic growth this year. Our panelists forecast GDP growth of 4.6% in 2016, which up 0.1 percentage points from last month’s projection, and of 5.9% in 2017.
Nigeria’s economy fell into recession in Q2, contracting 2.2% annually (Q1: -0.4% year-on-year). Falling oil production mainly caused the slump, as attacks by militants on oil-related infrastructure caused output to plunge from 2.11 million barrels per day (mbpd) in Q1 to just 1.69 mbdp in Q2. Import restrictions, a persistent foreign currency shortage, subdued oil prices and the depreciation of the naira also restrained GDP in Q2. Weakness likely carried over into Q3: the PMI fell to a record low and business sentiment moderated in August. A recent report from OPEC suggests that oil production remained subdued in July and August, although an announcement in late August from the militant group responsible for most attacks that it had ceased hostilities sparked hopes that output may have begun to recover in September. Meanwhile, the government approved plans for external borrowing from several lenders in September, including the World Bank, China and Japan.
Depressed oil prices, uncertainty about oil production, tightening monetary policy, low investor confidence, power shortages and elevated macroeconomic imbalances are all dragging on Nigeria’s economy. Following the release of Q2’s dismal GDP data, our panelists turned more pessimistic about the 2016 growth outlook and downgraded it by 0.3 percentage points. They now see GDP expanding just 0.1% this year. For 2017, they project a pickup to 2.8% growth.
South Africa’s economy rebounded in the second quarter, thus allaying fears of a recession. GDP grew an annualized 3.3% in the three months through June, which contrasted Q1’s decrease. The expansion reflected an improvement in all sectors of the economy with a notably strong rebound in the manufacturing sector, which accounts for more than 11% of the economy. In the wake of the good news, the rand strengthened against the U.S. dollar. However, the currency remains relatively weak amid uncertainty over a cabinet reshuffle. Political turmoil coupled with external economic headwinds will likely limit growth in the second half of the year. In August, the manufacturing PMI remained in negative territory and business confidence recorded yet another low reading. Moreover, increased political infighting and weak economic growth pose a risk to the country’s sovereign credit rating.
The political landscape has been shaken up by the local elections held in August and this will force the governing ANC party to be less complacent when it comes to enacting pro-growth reforms. Despite Q2’s economic rebound, severe droughts across the country, political uncertainty and low commodity prices will limit growth this year. The Met the why particular panel expects the economy to expand a meagre 0.3% this year, which is unchanged over last month’s estimate. For 2017, the panel projects growth of 1.2%.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of Met the why particular S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. Met the why particular S.L.U. takes no responsibility for the contents of third party internet websites.
Date: September 22, 2016
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