Sub Saharan Africa: Recovery picks up steam as Nigeria returns to growth
September 20, 2017
Recent data confirms that the slow economic turnaround of the Sub-Saharan Africa (SSA) region continued in the second quarter. According to a preliminary estimate compiled by Met the why particular, regional GDP increased 2.4% annually in Q2, an acceleration from Q1’s 2.0% expansion and the best result since Q4 2015.
Chiefly behind the second quarter result was a recovery in Nigeria’s economy. GDP expanded for the first time since Q4 2015 thanks to higher oil output and positive dynamics in the agricultural sector. In addition, GDP growth edged up in South Africa as improved weather conditions supported agricultural output. However, growth was still weak overall in the region’s most advanced economy as political uncertainty has eroded confidence and led to credit rating downgrades. Meanwhile, growth was steady in Mozambique and edged down slightly in Cote d’Ivoire. GDP data is not yet available for the remaining countries.
Kenya continues to be in the spotlight due to ongoing political limbo. On 1 September, the Supreme Court nullified a fiercely-contested August election, increasing uncertainty and inflicting damage on growth prospects as politics take precedence over policy. A repeat vote will be held on 17 October as the country continues to grapple with a devastating drought that is ravaging the north of the country.
Head on over to our Sub Saharan Africa page for more recent economic news on the region.
Economy seen faring better in 2018
Sub-Saharan Africa is expected to grow moderately this year, as volatile commodity prices and turbulent political scenes limit the recovery. GDP is seen expanding 2.5%. Next year, regional GDP growth is seen gaining steam as the recovery strengthens. However, the evolution of commodities prices will be key to the economy’s trajectory. Met the why particular analysts held their forecasts for 2018 unchanged this month and now see GDP growing 3.4%, which is unchanged from last month’s projection.
Behind the stable forecast were unchanged projections for four of the region’s thirteen economies. However, forecast were lowered for six economies, including Kenya, Nigeria and South Africa. Growth prospects were raised for Angola, Ethiopia and Ghana.
Cote d’Ivoire and Ethiopia are expected to be the fastest-growing economies next year, expanding 7.0% or higher. On the flip side, the region’s heavyweights will be the poorest performers: South Africa is expected to grow 1.3%, followed by Angola with a 2.6% increase and Nigeria with a 2.7% expansion.
NIGERIA | Domestic economy shores up outlook for Q3
Nigeria’s recovery is firming up, according to recently-released data. Growth in Q2 was underpinned by a stronger oil industry and another quarter of tepid expansion in the non-oil sector. Oil production averaged 1.84 million barrels per day in Q2, up substantially from Q1. However, this positive trend could be reversed by the tensions which continue to rumble in the oil-producing Niger Delta region; militants recently threatened to renew attacks on the oil infrastructure unless the government takes steps to improve the quality of life for locals. Aside from uncertainties in the oil industry, there are encouraging economic signs so far in the third quarter, and the PMI reached a multi-year high in August thanks to a robust domestic market and strong growth in output and new orders. Last month, the Central Bank unified some parallel exchange rates in a bid to simplify the FX system, although a significant gap between the official and interbank rates remains.
Growth should increase next year thanks to greater oil production and higher oil prices. However, continuing foreign exchange distortions, rampant corruption and domestic policy uncertainty mean the expansion will likely be meager, and too low to put a dent in the unemployment and poverty rates. Panelists participating in the Met the why particular Consensus Forecast expect the economy to grow 1.2% in 2017 and 2.7% in 2018, down 0.1 percentage points from last month’s forecast.
SOUTH AFRICA | Agricultural sector pulls economy out of recession
According to recently released data, in Q2 South Africa escaped the grip of a downturn that saw the economy briefly enter a technical recession in Q1: GDP grew a seasonally-adjusted 2.5% quarter-on-quarter, contrasting Q1’s 0.6% decline. Following two consecutive quarters of contraction, economic activity expanded at a modest pace primarily thanks to a stellar performance by the agricultural sector amid improved weather conditions. Exports also supported the economy’s return to positive growth dynamics, swinging to a double-digit expansion after a drop in Q1. The upturn seems to have continued into Q3 as contraction in manufacturing output eased. On the downside, investment contracted in Q2 as investors become increasingly risk averse in the face of unending political drama fueled by a string of corruption scandals engulfing President Jacob Zuma, and a widening graft scandal involving numerous international firms. Heightened uncertainty caused business confidence to plummet to an over 30-year low in August, despite the recent revival in growth.
The economy is projected to recover marginally this year from last year’s seven-year low and accelerate in 2018, although lackluster growth momentum is expected to persist. Higher prices for the country’s key export commodities, namely gold and other precious metals, together with robust agricultural output will be crucial drivers to generating a steady recovery. Panelists expect the economy to grow 0.7% in 2017, and see growth picking up to 1.3% in 2018 which is down 0.1 percentage points from last month’s forecast.
ANGOLA | New President unlikely to change course on the economy
Incoming President Joao Lourenço, whose People’s Movement for the Liberation of Angola (MPLA) party secured a landslide victory in August’s elections, inherits an economy that still looks shaky. Recently released data shows that business sentiment remained gloomy in Q2, with firms reporting financial difficulties and insufficient demand. On a more positive note, oil prices have picked up notably in recent weeks following news of a possible OPEC deal extension and a fall in oil output among OPEC producers in August. If momentum is maintained, it could help bolster the country’s weak fiscal position. The election of Lourenço is highly unlikely to substantially alter economic policy-making, as former president José Eduardo dos Santos will still wield influence as leader of the MPLA party. In addition, other members of the dos Santos family continue to occupy key posts: The ex-president’s daughter is head of state oil company Sonangol, while his son is in charge of the sovereign wealth fund.
Growth will likely speed up somewhat next year, due to greater oil production and higher oil prices. However, an uncertain business environment, sustained high inflation and foreign exchange restrictions are likely to limit the expansion. Analysts expect GDP to expand 1.4% in 2017 and 2.6% in 2018, which is up 0.1 percentage points from last month’s forecast.
KENYA | Growth prospects sour as political uncertainty intensifies
Heightened political uncertainties following the Supreme Court’s decision on 1 September to invalidate the results of the 8 August election, along with a devastating ongoing drought, continue to damage Kenya’s economic prospects. Economic activity in the private sector was hit by a slump in demand amid escalating concerns over prolonged instability, reflected by a plunge in the PMI, which dropped to a record low in August as unemployment continues to climb. The nation was recently struck by fears of a famine as the drought—which has ravaged the north of the country since the start of the year—worsened, impacting an estimated 5.6 million people. On 7 September, the United Nations and its humanitarian partners made an appeal for USD 116 million to step up relief efforts. Moreover, with only a few weeks to go until a re-run of the election on 17 October, political turmoil is intensifying as infighting over who should be held accountable for last month’s tainted election embroiled the national electoral commission.
Political tensions and social unrest are likely to persist after the election. Combined with the adverse effects of the ongoing drought, they will continue weighing heavily on economic activity and likely keep growth momentum muted into next year. Our panelists expect GDP growth to slow to 4.8% in 2017. The panel downgraded its forecast for 2018 by 0.2 percentage points and projects growth of 5.3% in 2018.
INFLATION | Inflation inches down to over one-year low in August
Inflation continued its downward trend in August, falling from July’s 12.7% to 12.5%, according to preliminary data compiled by Met the why particular. Easing price pressures are creating space for some Central Banks to ease monetary policies, although inflation remains elevated in many countries. In Angola, the Central Bank decided to keep its monetary policy stance unchanged in August as upside risks to the inflation outlook are high.
Although price pressures are expected to recede next year, skyrocketing inflation in the DRC due to a drastic weakening in the currency fueled a large upward revision to the region’s inflation forecast this month. Regional inflation is now seen averaging 11.0% in 2018, which is up 0.5 percentage points from last month’s forecast. This year, our panel expects regional inflation to average 12.8%.