Sub Saharan Africa Economic Forecast

Economic Snapshot for Sub-Saharan Africa

May 23, 2018

Revised data for Angola sours SSA’s 2017 performance

A more comprehensive set of data revealed that Sub-Saharan Africa’s (SSA) economy ended 2017 on a weaker note than previously expected. Regional GDP increased 2.7% year-on-year in the final quarter of last year, below last month’s preliminary estimate of a 3.0% expansion. In addition, the region’s third-quarter performance was revised down from the 3.0% increase estimated last month to a more subdued 2.4% expansion. The large downward revisions were mainly due to the inclusion of new quarterly national accounts data for Angola, which released quarterly figures for the first time in May.   

Along with the new quarterly figures, Angola’s Statistical Institute also made large downward revisions to GDP data for the past two years. While previous figures stated that the economy grew modestly in 2016–2017, new data exposed a long and unexpected recession, suggesting that economic conditions have been more challenging than previously thought. The strong downward revision to the earlier figures was chiefly due to changes in results for manufacturing output and public spending.

Elsewhere in the region, the growth story remains unchanged, and regional activity picked up modestly overall in the fourth quarter of 2017 thanks to higher commodity prices, solid global growth and sound harvests. Available data for the start of 2018 suggests that growth continued to improve. The Consensus Forecast is for GDP to expand 3.4% annually in the first half of the year. Higher oil prices and improved FX allocation should support growth in Nigeria, while Cyril Ramaphosa’s presidency has helped revive confidence in South Africa. Growth is also projected to have picked up in Kenya thanks to a calmer political scene and improved conditions in the agricultural sector. Meanwhile, incoming data suggests that Ghana’s economy is still growing at a marked pace, albeit down from last year’s multi-year high.  

Growth set to hit a four-year high in 2018

The recovery in Sub-Saharan Africa’s economy is expected to gain steam this year, thanks to stronger growth in major players Nigeria and South Africa. Firmer commodity prices and healthy foreign demand will support regional growth, although several challenges to the outlook exist, including high debt, large imbalances and vulnerability to fluctuations in the global financial market. Met the why particular panelists see regional GDP expanding 3.5% in 2018, unchanged from last month’s forecast. In 2019, growth is seen accelerating to 3.7%.

This month’s stable outlook for the region was driven by unchanged projections for 9 of the SSA region’s 13 economies, including Ghana, Kenya and Nigeria. Three economies saw their forecasts lifted, including South Africa, while Mozambique was the only economy to have its forecast downgraded.

Ethiopia’s economy is expected to be the best performer in SSA this year, with 8.1% growth, followed by Ghana (7.3%) and Côte d’Ivoire (7.1%). On the other hand, the region’s major players are expected to be the slowest growing economies. Angola’s economy is seen growing 1.9%, South Africa’s economy is seen expanding 2.0% and Nigeria’s GDP is projected to increase 2.6%.

NIGERIA | Swap agreement with China bodes well for liquidity

Incoming data points to a firming recovery in the first half of 2018, after growth hit a two-year high in the fourth quarter of last year. The PMI came in at one of the highest levels on record in April, and preliminary data from OPEC revealed that oil production rose in the same month. Although activity is gaining steam, the recovery is moderate overall. Crude oil output is below the government’s budget assumption, weighed down by poor infrastructure and maintenance work, and the state oil company Nigerian National Petroleum Corp is beset by mismanagement and financial woes. On a brighter note, authorities finally passed the delayed 2018 budget on 16 May, which should lead to a pick-up in public spending. In addition, at the end of April, Nigeria and China agreed to a three-year currency swap worth NGN 720 billion. The agreement should help boost liquidity and encourage trade between the two countries; China is one of Nigeria’s largest trading partners.       

Higher oil prices and improved foreign exchange rate liquidity should drive a pick-up in growth this year. However, political uncertainty ahead of February’s elections, a lack of diversification away from the oil sector and a poor business environment remain key concerns. Met the why particular panelists expect GDP to increase 2.6% in 2018, which is unchanged from last year’s projection. Next year, growth is seen rising moderately to 3.0%.            

SOUTH AFRICA | Ramaphosa fuels nascent uptick in activity

Amid the recovery in economic sentiment on the heels of Cyril Ramaphosa’s ascension to the country’s top post in February, weak performances in the mining and manufacturing sectors in March have upset expectations of strong growth in the first quarter. That said, full-year prospects still appear relatively bright as other sectors of the economy have shown nascent signs of an upturn since Ramaphosa took office, on the hopes of new business-friendly policies and a crackdown on corruption. Although a sharp depreciation of the rand against the dollar in May is likely to weigh on household spending in Q2, consumer confidence and retail sales both shot up through March just as inflation hit a nearly seven-year low. Moreover, upbeat PMI readings through April suggest that the private sector continued posting gains and hiring workers despite a VAT hike and ongoing labor strikes.

Full-year economic prospects are not expected to take a hit from the recent sluggishness of industrial output. Moreover, greater political stability and Moody’s decision to maintain an investment-grade credit rating bode well for the economy. Low inflation and higher real wages should support stronger household spending, while the government’s new push to attract investment should help bolster capital outlays. Nevertheless, fiscal slippage and a slow reform agenda will constrain growth over the medium term. Met the why particular analysts expect growth of 2.0% in 2018, up 0.1 percentage points from last month’s estimate, and 2.0% again in 2019.

ANGOLA | GDP revision reveals economy on weak footing

Recently revised data from the Statistical Institute (INE) showed an unexpected and prolonged recession over the past two years, contrasting previously announced figures of a moderate recovery in GDP growth last year. According to the new figures, the economy shrank 2.5% in 2017, held back by subdued domestic demand. Public spending on defense and social security fell by double digits last year, while very high inflation throughout last year likely weighed on household consumption and investment growth. Meanwhile, prior to the recent data revisions, Moody's downgraded Angola's credit rating from “B2” to “B3” with a stable outlook on 27 April. Fitch Ratings, however, affirmed the country’s “B” rating and revised it from “Negative” to “Stable” amid the government's new economic reform agenda and changes in the foreign exchange regime management. Both moves came ahead of the INE’s most recent data release.

The economy is expected to emerge from recession this year, led by rising prices for Angola’s top export commodities. Moreover, a rebound in investment activity is expected; President Joao Lourenco has shown a willingness to address macroeconomic imbalances through exchange rate adjustments and fiscal consolidation. Nevertheless, caution over the short-term outlook should be maintained; most Met the why particular panelists have not yet taken the latest GDP revisions into account. They see GDP expanding 1.9% in 2018 and 2.2% in 2019.

KENYA | Economy gains momentum in at the outset of Q2

Kenya’s economic recovery continued to gain momentum at the outset of the second quarter against the backdrop of a stable political scene, as President Uhuru Kenyatta patched up a longstanding fall-out with Raila Odinga, the primary opposition leader. The PMI in April shot up to the highest mark since January 2016, signaling that business conditions in the private sector brightened for the third consecutive month. Exports picked up at the start of the year, growing at a double-digit pace in January and February, while imports slowed significantly, narrowing the trade deficit. Meanwhile, improved weather conditions are helping to buoy agricultural output. While the economy is showing signs of an upturn, the country’s financial stability remains fragile as the debt burden continues to mount.

Economic growth is expected to accelerate this year thanks to easing monetary conditions, higher investment and a continued rise in agricultural output. Completion of phase one of the standard gauge railway between Mombasa and Nairobi should help curb import demand and narrow Kenya’s current account deficit. Moreover, the government has pledged that it will “eliminate or significantly modify” an interest rate cap on commercial bank lending rates that has stymied private sector credit growth, although the timing of its removal is still unclear. While reduced political tensions will continue to lift confidence, a tighter fiscal policy will restrain the stride at which the economy will grow. Met the why particular analysts project GDP expanding 5.5% in 2018, which is unchanged from last month’s forecast, and 5.8% in 2019.

MONETARY SECTOR | Inflation falls to lowest level since December 2015

Preliminary data revealed that inflation continued to fall in April, reaching the lowest level in over two years. Regional inflation came in at 8.6%, down from March’s 8.8% reading. Lower price pressures were observed in the bulk of the economies, including Kenya and Nigeria. Healthier harvests and the fading impact of past droughts have helped calm regional inflation.

The Consensus Forecast for regional inflation in 2018 was unchanged this month after two consecutive cuts, and inflation is seen averaging 11.3% this year. In 2019, our panel expects regional inflation to recede and average 9.2%.

Angela Bouzanis

Senior Economist 

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