Sub Saharan Africa Economic Forecast

Economic Snapshot for Sub-Saharan Africa

February 20, 2019

Recovery still on track despite Q4 2018 cool-off

Sub-Saharan Africa’s (SSA) economic recovery appeared to face some headwinds in the fourth quarter, on the heels of a marked upturn in the third quarter. Although fourth-quarter national accounts remain outstanding for all economies bar Nigeria, a very preliminary estimate suggests that regional growth through year-end dipped to 3.0% year-on-year (previously reported: +2.8% year-on-year). Meanwhile, comprehensive third-quarter national accounts confirmed regional growth at 3.1% year-on-year as the region’s major players shook off a mid-year malaise.

Nigeria’s recovery appeared to turn the corner in the fourth quarter as the economy notched its fastest growth in more than three years, thanks in large part to strengthening non-oil economic activity. On the supply side, all sectors witnessed an improvement as bumper harvests nudged up agricultural output, while industrial and services output were lifted by manufacturing- and telecom-sector gains, respectively.

Notwithstanding a remarkable quarter for the region’s heavyweight, the regionwide comeback appeared to lose steam through year-end on slowdowns in two of the remaining regional juggernauts: Kenya, and South Africa. Steady-as-she-goes Kenya appears to have lost some ground amid a pullback in private-sector lending and calamitous fiscal woes. South Africa, on the other hand, having left recession in the third quarter, continues to flirt with instability. Available fourth-quarter data has been offbeat, but analysts have grown increasingly concerned over the myriad challenges facing the economy—especially high unemployment and rampant corruption. Meanwhile, recession-mired Angola, another major player, looks to have contracted again on tepid oil-sector output which, as in Nigeria, was hit by the late-year oil-price correction.

Looking ahead, this year’s anticipated political shake-up has already begun undermining economic sentiment throughout the region. Felix Tshisekedi’s improbable election victory in the Democratic Republic of Congo (DRC) was met with accusations of vote rigging, although international calls for a recount fell on deaf ears. In fact, a number of African leaders hailed Tshisekedi’s win, likely in hopes of mitigating bloodshed. More recently, Nigeria’s presidential election faced a last-minute, one-week delay on 16 February; both frontrunners seized the opportunity to insinuate foul play, stoking discord among voters. South Africans, meanwhile, will head to the polls on 8 May and anxieties are likely only to worsen in the run-up to the vote. Critically, the continued implementation of incumbent Cyril Ramaphosa’s hard-fought economic reforms will almost certainly require a stronger mandate for his African National Congress (ANC). Most analysts consider this a tall order, although some consider it plausible given the opposition’s disarray.

Recovery set to pick up despite deteriorating backdrop

Notwithstanding last year’s slight fourth-quarter cool-off, momentum for the region’s recovery is expected to pick up this year. A slowing global economy should nonetheless continue to underpin external demand and, in turn, firmer commodity prices are expected to fuel stronger economic activity across the region’s export-driven economies. That said, although oil-sector output is expected to tick up in major-player Angola, it remains more of an uncertainty in heavyweight Nigeria. Along with higher real wages, upbeat public- and private-sector investment should propel domestic demand across many of the region’s remaining economies.

That said, downside risks to the outlook have continued to chip away at full-year growth prospects in recent months. A global cool-off threatens a pullback in trade and abruptly higher borrowing costs, with capital flight still a major concern for those economies running current-account deficits. Meanwhile, as ever, the political backdrop presents acute challenges as policy uncertainty and the prospect of fiscal slippage drives the narrative in the run-up to elections in Nigeria and South Africa—the region’s largest economies, by far.

In line with last year’s strong second half, full-year regional growth is expected to have clocked in at 2.9% in 2018, held back by recession-hit Angola. Moreover, growth forecasts for the next two years were left intact in recent weeks; full-year regional growth is seen picking up to 3.5% in 2019 and then to 3.8% in 2020, both of which are unchanged from last month’s forecasts.

Eleven of the region’s economies had their full-year 2019 growth forecasts left intact this month, including major-player South Africa. Meanwhile, five economies—including Angola, Kenya, and Nigeria—had their growth forecasts lowered. On the other hand, the DRC had its growth forecast raised. Ethiopia and Rwanda should lead the pack this year, with both seen growing at over 7.5%. In contrast, Angola and South Africa are seen trailing significantly as the only economies growing below 2.0%.

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NIGERIA | Recovery strengthens; elections delayed

On 16 February, Nigeria’s electoral commission unexpectedly announced the postponement of the general election by one week due to logistical reasons, just hours before polls were scheduled to open. The move has further fueled uncertainty over the outcome of the tight presidential race between incumbent President Muhammadu Buhari and Atiku Abubakar, the main opposition candidate. Although a Buhari victory will likely translate into a continuation of status-quo policy ahead, Abubakar’s business-friendly economic agenda hints at the possibility of a policy shift, particularly in the management of the foreign exchange regime and vital oil industry. The election comes on the heels of recently-released national accounts data which revealed the economy gathered momentum in the final quarter of 2018, with growth hitting an over three-year high on the back of a broad-based expansion within the non-oil sector. The all-important oil and gas sector, however, remained in the doldrums and contracted for the third consecutive quarter in Q4 amid lower oil production and easing global crude prices, weighing on overall activity.

Growth is seen picking up this year on the back of stronger capital investment and consumer spending. However, a continued fall in oil prices and announced oil production cuts by OPEC could dent activity in the all-important oil industry, clouding the outlook. Backtracking of structural reforms aimed at boosting productivity also poses a key downside risk ahead. Met the why particular panelists see GDP increasing 2.3% in 2019, down 0.1 percentage points from last month’s estimate, and 2.8% in 2020.

SOUTH AFRICA | Eskom threatens to destabilize economy; budget speech looms

South Africa’s economy appears to be slowly turning the page from last year’s short-lived recession, although available fourth-quarter data has been offbeat. On the demand side, retail sales were uneven through December, while the late-year correction in fuel costs sent inflation tumbling towards the South African Reserve Bank’s (SARB) midpoint target in December. Meanwhile, from the supply side, economic sentiment notched a recovery through year-end in line with stabilizing manufacturing-sector gains. All this follows an expectations-defying third-quarter rebound fueled by a build-up of inventories, as well a comeback in household spending on the heels of last year’s value-added tax hike. Looking ahead to the current quarter, however, a number of headwinds threaten to knock the recovery off course. These include this year’s budget announcement on 20 February, which is likely to detail last year’s missed fiscal targets and could throw the government’s sovereign ratings back into the spotlight. Moreover, troubles at Eskom, the state-owned power utility, have sparked rolling blackouts and its crippled finances could potentially destabilize the economy.

This year’s elections are expected to dictate the pace of the recovery over the short-term as Cyril Ramaphosa’s last-ditch economic reforms will depend on a mandate for his African National Congress (ANC). Higher real wages and new business-friendly prescriptions, meanwhile, are expected to lift economic sentiment and stoke household spending and fixed investment, respectively. Key downside risks remain, however, and a credit-rating downgrade by Moody’s would trigger large-scale capital outflows and undermine any short-term recovery. Medium-term growth prospects are being held back by concerns over fiscal slippage and the inadequate pace of reforms. Met the why particular analysts expect growth of 1.6% in 2019, unchanged from last month’s forecast, and 1.9% in 2020.

KENYA | Growth seen firm through last year-end; fiscal prospects deteriorate

Following a likely moderation in the final quarter of last year, the economy appears to have entered 2019 on a slightly less favorable note. A continued slowdown in remittance inflows, coupled with higher inflationary pressures and a moderation in credit availability in the quarter, likely curbed private spending in Q4. Turning to 2019, the PMI lost ground in January, signaling a weaker pace of expansion in private sector activity. Moreover, the agricultural sector will likely see a fall in output in the coming months owing to the end of the rainy season. On the debt sustainability front, the government plans to refinance the first tranche of maturing Eurobonds—worth USD 750 million—and to raise funds for infrastructure spending through a USD 2.5 billion Eurobond issuance by end-June. Moreover, the country is close to securing an agreement with the IMF on a new standby loan facility, which should also help to bring the public debt burden onto a more sustainable path.

Momentum is expected to be sustained in 2019, thanks to healthy domestic demand. Fixed investment growth will likely strengthen on improving business confidence and government spending should pick up on the delivery of President Uhuru Kenyatta’s “Big Four Agenda”. While remittances inflows are expected to remain robust, private consumption growth will likely moderate on rising inflationary pressures and weak credit availability owing to the interest rate cap on commercial bank lending. Met the why particular analysts project GDP growth of 5.8% in 2019, which is down 0.1 percentage points from last month’s forecast, and 5.7% in 2020.

ANGOLA | Still mired in recession through end-2018; oil-sector output slips

The economy appears to have remained stuck in recession in the final quarter of 2018, following a disappointing third-quarter outturn which had marked the fourth consecutive quarter of contraction. The country’s all-important oil sector continued to disappoint in Q4: Falling global oil prices wiped off any gains stemming from marginally higher oil production compared to the previous quarter. On top of that, the index of economic activity continued to deteriorate in Q4, pointing to the second largest contraction in nearly three years in November, chiefly due to the poor performance of the oil industry. In a similar fashion, external sector metrics appeared no more upbeat, with exports contracting in November on the back of lower energy shipments. Meanwhile, after securing a deal with the IMF in December, Angola is poised to re-enter international bond markets in the coming months, with a 11-year bond reportedly in the works. This could prove challenging, however, as S&P Global Ratings revised Angola’s outlook from stable to negative on 8 February.

Met the why particular analysts see growth recovering this year, following last year’s estimated 2.4% contraction. Moderating inflation, a more accommodative monetary policy environment and a more stable kwanza should support private consumption, while ongoing economic reforms, reinforced by support from the IMF, are expected to prop up investment activity growth in 2019. Angola’s chronic dependence on its oil sector remains the key downside risk to the outlook, however. Our panelists project GDP to expand 1.2% in 2019, down 0.1 percentage points from last month’s forecast, and 2.3% in 2020.

MONETARY SECTOR | Inflation edges higher in January 

A comprehensive estimate by Met the why particular revealed that inflation ticked up at the outset of the year. Despite lower fuel costs, regional inflation inched up to 8.5% in January (December: 8.4%) amid runaway pressures in Zimbabwe. That said, inflation edged lower in major-players Angola and Kenya, and was roughly stable in heavyweight Nigeria. Notably, inflation in the DRC has been sitting comfortably in single-digit territory after spiking two years ago. More broadly, bumper agricultural output across the region has been checking food costs.

Monetary policy across the region has been responding to easing inflationary pressures in recent weeks. In both Angola and Ghana, dovish policymakers cut the policy rate in January amid falling inflation. On the other hand, central bankers in Kenya and Nigeria left rates intact in hopes of bringing still-high inflation to heel.

All told, annual average inflation landed at 8.9% in 2018 (previously reported: 9.1%). For 2019, Met the why particular expects regional inflation to moderate somewhat and average 8.5%, which is down 0.1 percentage points from last month’s forecast. For 2020, inflation is seen averaging 8.1%.

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Angela Bouzanis

Senior Economist 

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