Sub Saharan Africa Economic Forecast

Economic Snapshot for Sub-Saharan Africa

November 14, 2018

Heavyweights under pressure in Q2

Comprehensive second-quarter data revealed an unexpectedly downbeat outturn for the Sub-Saharan African (SSA) economy, which faltered mid-year as the region’s heavyweights staggered. Regional growth in the second quarter was slashed to 2.2% year-on-year, down significantly from both preliminary estimates (previously reported: +2.8% year-on-year) and the outset of the year (Q1: +2.6% year-on-year). Despite deteriorating metrics in Angola, Nigeria and South Africa, the region’s major players, much of the region notched faster gains as export-oriented economies continued shaking off the commodity slump. Economic tailwinds, including favorable weather conditions and firmer commodity prices, look set to persist through the remainder of the year; in line with anticipated upturns in Angola, Nigeria and South Africa, Met the why particular expects regional growth to have recovered in the third quarter, to 3.0% year-on-year.

Angola’s ever-worsening recession, which hit a new low through June as economic activity continued to plummet on falling oil and gas output, weighed heavily on regional growth in the second quarter. And, despite international lenders’ support, the economic pain only worsened as the agricultural, industrial and services sectors each notched losses in the quarter—further eroding the government’s coffers. Coupled with Nigeria’s pipeline disruptions in the second quarter and South Africa’s technical recession through the first half of the year amid a broad-based malaise, the region’s largest economies have been left behind this year by their peers. Case in point, Ghana notched robust growth in the second quarter on what appeared to be strong spending- and investment-related gains.

Highlighting our continuous efforts to improve coverage of the region, this month we are introducing the Consensus Forecast for Cameroon. We are excited for the opportunity to introduce our clients to the centrally-located, natural resource-rich economy and are eager to deliver the economic insight and critical analysis you have come to expect from Met the why particular. In its inaugural Consensus Forecast, we were pleased to report upbeat second-quarter growth amid construction efforts ahead of next year’s Africa Cup of Nations (Afcon). That said, significant downside risks are materializing: A low-level insurgency in the English-speaking regions has spooked investors, while some analysts expect long-standing ruler Paul Biya’s resounding election victory on 7 October to eventually precipitate a succession crisis.

Through the remainder of the year and beyond, political uncertainty is set to mount in Nigeria and South Africa ahead of next year’s elections. In Nigeria, both major parties confirmed their presidential candidates in recent weeks and are gearing up for what is expected to shape into a bruising campaign. In South Africa, meanwhile, President Cyril Ramaphosa will soon address his constituents on progress vis-à-vis promised fiscal-stimulus measures. With the economy sputtering out amid capital flight and emerging-market (EM) turbulence, Ramaphosa sought to act decisively in recent months with the hope of retaining voters in the run-up to elections. Analysts see an uphill battle for Ramaphosa’s African National Congress (ANC) heading into next year.

 Regional growth cut amid major-player tumult

Despite the second-quarter hiccup, the regional recovery—and, notably, the region’s heavyweights—should get back on track through the remainder of the year before picking up momentum next year. Buoyant external demand and, in turn, higher commodity prices are expected to fuel the acceleration in export-driven economies, while strong public- and private-led investment should propel growth in many of the region’s smaller economies. Despite next year’s prospective uptick, however, the economic backdrop has grown more challenging. Domestically, political uncertainty will dictate the regional narrative as Nigeria and South Africa head to the polls. Meanwhile, on the external front, a pullback in global trade would have significant ramifications for the region’s commodity-driven economies. Capital flight remains a key downside risk amid EM turmoil and higher U.S. interest rates—especially for those economies running current-account deficits.

As of this month, Cameroon has been included in our aggregated regional forecasts and the region’s historical data has been updated accordingly.

Regional growth is expected to clock in at 3.0% this year, which, if confirmed, would be the strongest outturn in three years. Next year, regional growth is seen picking up to 3.6%, which is down 0.1 percentage points from last month’s forecast amid weaker growth projections for Nigeria and South Africa. For 2020, growth is set to scale to 3.8%.

This month, five of the region’s economies saw their 2019 growth forecasts slashed; eight economies—including Kenya—had their growth projections left intact; while recession-mired Angola was the sole economy to have its growth outlook upgraded as analysts penciled-in a stronger recovery. Ethiopia and Cote d’Ivoire are expected to lead the pack next year, with both seen growing at over 7.0%. In contrast, South Africa is seen trailing significantly as the only economy growing below 2.0%.

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NIGERIA | Presidential candidates revealed as growth picks up

The economy appeared to have shifted into a higher gear in the third quarter following a slowdown in the second quarter. Incoming data, however, signals that growth cooled again at the beginning of the fourth quarter. According to the Ministry of Petroleum, oil output fell in October due to an escalation of sabotage attacks on oil production facilities. In addition, the PMI dipped to a 16-month low in October as both growth in output and new orders lost momentum in the surveyed month. In the political arena, Nigeria’s two key parties—the All Progressives Congress (APC) and the People’s Democratic Party (PDP)— confirmed their candidates for the 2019 presidential election. President Muhammadu Buhari, who has been criticized for his economic policies—particularly over the mismanagement of the FX market and the rise in unemployment—will lead the APC against the PDP’s Atiku Abubakar, who is pitching himself as the pro-business candidate in February’s general election.

Growth is seen strengthening next year against the backdrop of rising oil production following a significant ramp-up in infrastructure investment in recent years. Moreover, softer inflation and improved exchange rate liquidity should buoy domestic demand dynamics in 2019. Political uncertainty and downside risks related to the 2019 election cloud the outlook, however. Met the why particular panelists see GDP increasing 2.6% in 2019, down 0.1 percentage points from last month’s estimate, and 3.0% in 2020.        

SOUTH AFRICA | Midterm budget sparks renewed credit-rating fears

Although available data suggests the economy remained in the doldrums in the third quarter, analysts expect it to have exited this year’s short-lived recession amid the government’s loudly-touted efforts to stimulate activity. Any anticipated recovery through the remainder of the year will require demand-side improvement, which appears to have come up short thus far; unemployment ticked ever higher in the third quarter, while a further retreat in business confidence is likely to have weighed on investment. External-sector metrics were even less encouraging, with export growth in annual terms at its weakest in a year. More bad news came in the delivery of the midterm budget on 24 October, when newly-appointed Finance Minister Tito Mboweni presented a bleak fiscal outlook haunted by weak growth prospects and rising debt-servicing costs—but sought to reassure spooked investors with President Cyril Ramaphosa’s promised fiscal stimulus. In response, all three credit-rating agencies issued concerns over the inadequate pace of fiscal consolidation.

Despite tepid near-term growth prospects, Met the why particular analysts expect the economy to emerge from recession by year-end before bouncing back somewhat next year. Last-ditch fiscal stimulus is likely to lift economic sentiment ahead of next year’s elections and should serve to stoke household spending and fixed investment. Amid worsening economic and political anxieties, however, the possibility of additional credit-rating downgrades will remain a key downside risk. Medium-term growth prospects are being weighed down by concerns over fiscal slippage and the inadequate pace of structural reforms. Met the why particular analysts expect growth of 1.7% in 2019, down 0.1 percentage points from last month’s forecast, and 2.1% in 2020.

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ANGOLA | Recession deepens amid dwindling oil and gas output

The economy remained in deep recession in the second quarter as GDP contracted 7.4% in annual terms, a marked deterioration from Q1’s result (Q1: -4.7% yoy). Declining oil production weighed on the all-important oil extraction and refining sector, which in turn likely took a bite out of exports growth. In addition, manufacturing output also weakened in Q2 and, despite ongoing economic reforms pursued by President João Lourenço’s government, incoming data suggests that GDP continued to contract in the third quarter. Oil production slipped again in annual terms in Q3, while a sustained depreciation of the kwanza and elevated inflation weighed on purchasing power, which will likely have dragged on household consumption. Meanwhile, on 26 October the United Nations condemned the Angolan security forces of “serious human rights abuses” following the deportation of over 300,000 Congolese from the country as part of the government’s fight against illegal diamond mining in the country.

The economy is expected to return to growth next year, supported by improving domestic demand dynamics and rising oil production. Waning inflationary pressures should bolster household consumption, while fixed investment should benefit from more favorable financing conditions amid ongoing economic reforms. However, Angola’s dependence on the volatile oil sector remains the key risk to the outlook. Met the why particular panelists see GDP expanding 2.3% in 2019, up 0.1 percentage points from last month’s forecast, and 2.8% in 2020.

KENYA | Growth seen firm through year-end

Private sector activity slightly moderated in the third quarter from the previous quarter due to waning business confidence and concerns over the new fiscal year tax measures. On the upside, the arrival of the short rainy season should buoy agricultural output and hydro-powered electricity generation in the fourth quarter. An acceleration in activity at the outset of Q4 hinted at this, reflected by a rise in the PMI in October. However, the advent of heavy rains—which have intensified in recent years—have heightened the risk of floods and landslides, which could lead to disruptions. On the upside, rising remittances have bolstered household incomes and, in turn, private spending, helping to narrow the current account deficit. The latest data shows that remittances rose more than 55% in Q2, while the current account deficit fell by more than 30%.

Robust growth is expected next year, supported by strong domestic demand and healthy capital inflows. Solid private consumption underpinned by buoyant remittance inflows, coupled with an acceleration in fixed investment growth fueled by stronger business confidence, should drive the economy. However, the continuation of the interest rate cap on commercial bank lending rates could constrain the government’s ability to secure additional funds from the IMF and thus finance the FY 2018–2019 budget. This, compounded by the government’s fiscal tightening measures, cloud the outlook. Met the why particular analysts project GDP growth of 5.8% in 2019, which is unchanged from last month’s forecast, and 5.8% again in 2020.

MONETARY SECTOR | Inflation ticks up at end-Q3

Met the why particular’ comprehensive estimate revealed that inflation crept up at the end of the third quarter. Regional inflation ticked up to 8.6% in September amid higher prices in major-players Angola, Nigeria and Kenya. Notably, inflation in the DRC continued its precipitous decline, remaining comfortably in double-digit territory in September. More broadly, favorable weather conditions and bumper yields have been keeping food prices in check throughout the region. A preliminary estimate suggests that inflation dipped slightly to 8.5% in October.

August’s revision (8.4%; previously reported: 8.6%) was driven largely by the inclusion of Cameroon, which has been experiencing very-low inflation due to heavily-regulated prices.

Regional inflation looks set to average 9.4% this year. Next year, Met the why particular expects inflation to moderate to 8.8%, which is up 0.2 percentage points from last month’s revised forecast (8.6%; previously reported: 8.8%) due to the inclusion of Cameroon, before easing to 8.1% in 2020.

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Angela Bouzanis

Senior Economist 

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