Economic Snapshot of Sub-Saharan Africa
December 14, 2016
SSA economic performance remains sluggish in Q3
Recent GDP data show that key economies in Sub-Saharan Africa (SSA) decelerated markedly in Q3, thus dragging on the regional growth rate. The region’s GDP expanded 1.1% on an annual basis, which was below the 1.2% increase recorded in the previous quarter and was the lowest expansion in over six years. The disappointing figure was driven mainly by weak dynamicss in the region’s two largest economies—South Africa and Nigeria. On the other hand, Mozambique’s economy accelerated in Q3 from the previous quarter’s reading, though growth remained low compared to its historical levels.
A slow recovery in global demand and heightened political turmoil harmed South Africa’s economy in Q3. While domestic demand proved resilient, the external sector was a drag on growth and exports recorded a double-digit contraction. Moreover, Nigeria’s economy fell into a recession in the third quarter as GDP contracted for the third consecutive quarter. The contraction was underpinned by a drop in oil output largely due to militant attacks on oil infrastructure, while the non-oil sector of the economy posted flat growth. Nigeria’s economy continues to be harmed by low oil prices and a sharp depreciation of the naira. That said, the recently sealed deal between OPEC and non-OPEC members to cut oil output should ease the global supply glut, put upward pressure on oil prices and support the oil-exporting countries in the region.
In political news, opposition leader Nana Akufo-Addo triumphed at Ghana’s presidential elections earlier this month. The popularity of incumbent President John Mahama has dissipated in recent years as high inflation and elevated unemployment have eroded private consumption. The ability to implement structural macroeconomic reforms and to keep spending in check will be key determinants of the future government’s political and economic success.
2017 growth prospects deteriorate
Growth is projected to improve from this year’s timid expansion on the back of a gradual pickup in the world economy and a recovery in commodity prices, however growth will remain weak. Economic progress will also depend on how fast governments implement reforms aimed at promoting growth and reestablishing macroeconomic stability. Moreover, prudent fiscal policies coupled with tighter monetary policy should tackle sharp increases in inflation and keep public fiscal balances in check.
This month, our panel of analysts downgraded SSA’s GDP forecast for 2017 and they now expect economic growth of 2.9% next year, which is down 0.2 percentage points from last month’s estimate. In 2018, our panelists expect the economy to expand 3.9%.
The downgrade to the region’s 2017 economic outlook reflects downward revisions for seven economies including Nigeria. On the other hand, growth estimates were upgraded for Ghana, Kenya and Tanzania. Cote d’Ivoire will be next year’s fastest-growing economy, followed by Ethiopia and Tanzania. In contrast, South Africa is forecast to be the worst performer with an expansion rate of 1.2%.
NIGERIA | Economy falls into recession in Q3
Nigeria is currently facing its worst economic crisis in more than 20 years as the economic contraction worsened by more than expected in Q3, driven by a contraction in the oil sector, which is the country’s largest source of revenue. Despite Q3’s abysmal reading, the latest data and developments support the view that the economy has bottomed out, though economic activity remains weak and structural imbalances persist. The non-oil sector posted flat growth in Q3 after contracting for two consecutive periods. Forward-looking indicators from Q4 show that business confidence surged to a ten-month high while the Manufacturing PMI improved but remains in contraction. The output cut agreement reached first by OPEC members in late November and on 10 December by OPEC and non-OPEC members should give Nigeria’s beleaguered economy some breathing room since the deal exempts the country from cutting production.
The economy is expected to rebound in 2017 after contracting for the first time in over two decades in 2016. The recovery, however, will be fragile. Tight liquidity conditions, capital controls and further militant attacks could dampen growth prospects. Panelists participating in the FocusEconomics Consensus Forecast project that the economy will grow 1.4% in 2017, which is down 0.5 percentage points from last month’s forecast. They foresee a 3.0% expansion in 2018.
SOUTH AFRICA | Growth remains subdued in Q3
South Africa recorded another weak expansion in the third quarter as growth continues to be dragged down by high political uncertainty, still weak global demand and a lack of much-needed structural reforms. In Q3, GDP barely expanded on a sequential basis. The dismal growth was fueled by an improvement across the board in domestic demand, while the external sector disappointed, with a double-digit contraction in exports leading to the largest deduction from growth in over a year. South Africa avoided a credit rating downgrade earlier this month, but the country remains under high scrutiny and risks a rating review if economic conditions do not improve. The numerous corruption scandals involving President Jacob Zuma have widely divided the ruling ANC party and calls for his resignation have heightened lately. The political infighting is undermining the investment environment, negatively affecting the rand and thereby constraining GDP growth.
A gradual improvement in the world economy and a recovery in commodity prices will support the economy next year, though ongoing political scandals and the dire state of the labor market will weigh on growth. On balance, the FocusEconomics panel expects the economy to expand 1.2% in 2017, which is unchanged from last month’s estimate. In 2018, growth is expected to accelerate to 1.8%.
ANGOLA | Growth prospects remain grim
Amid skyrocketing inflation and a plunging currency, the Angolan economy has likely grown at the slowest rate in over a decade in 2016. Its fiscal and external positions have deteriorated due to the drop in oil prices, which has also negatively impacted investment. The kwanza has lost over 20% of its value year-to-date, reducing consumer purchasing power. The recent OPEC agreement is pushing up oil prices and should eventually have positive effects for strapped government finances, but it will take time for these to appear. The country also faces political uncertainty, as President José Eduardo Dos Santos recently announced his retirement before the next general election scheduled for August 2017.
As oil prices recover, government revenues should improve as oil revenues constitute the bulk of Angola’s fiscal revenues, but the country’s growth prospects remain grim overall and will not be helped by political uncertainty. Analysts expect GDP to grow 1.5% in 2017, which is down 0.6 percentage points from last month's forecast. In 2018, they see the economy growing 2.9%.
KENYA | Policy on interest rate cap threatens the economy
Kenya has shown resilient growth so far this year and its economy remains one of the fastest-growing in the region. Improvements in both domestic and external demand supported the manufacturing sector in November, when the manufacturing PMI index recovered from the previous month’s four-month low on the back of an increase in new orders. Higher demand from key trading partner Uganda contributed in particular to the rebound. That said, downside risks remain. A slowdown in private sector credit growth, which is a direct consequence of the government’s decision to limit commercial banks’ interest rates, and the relatively weaker currency could hold back activity growth in the private sector. In the last week, the shilling has been under pressure due to increased demand for the U.S dollar from importers.
Public investment, loose monetary policy and closer integration in the East African Community will support Kenya’s economy in 2017. However, rising political uncertainty regarding presidential elections in August next year will put pressure on growth. On balance, FocusEconomics panelists see the economy growing 5.8% in 2017, which is up 0.1 percentage points from last month’s estimate. In 2018, the panel sees GDP growth also at 5.8%.
INFLATION | Inflationary pressures remain elevated in November
Revised data for October show that inflation was stable at September’s 13.5%. A preliminary estimate for November shows that inflation in the SSA region was 13.6%. Inflationary pressures remain elevated due to weakness in currencies across the region as well as energy and water shortages.
Panelists participating in this month’s FocusEconomics Consensus Forecast expect regional inflation to average 11.1% in 2017, which is up 0.4 percentage points from the previous month’s estimate. The upward revision reflects an increased inflation forecast for six countries including Angola and Nigeria. Panelists see regional inflation receding to an average of 9.1% in 2018.
Written by: Dirina Mançellari, Senior Economist
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Sub-Saharan Africa Economic News
January 23, 2017
At its 20 January monetary policy meeting, the Bank of Ghana (BOG) decided to leave the monetary policy rate unchanged at 25.50%, following the first rate cut in over five years in November.
January 20, 2017
In November, manufacturing production increased 1.9% over the same month of the previous year, which contrasted the 2.7% decrease recorded in October.
January 19, 2017
In December, consumer prices in South Africa increased 0.40% from the previous month, which followed November’s 0.32% increase.
January 19, 2017
In December, consumer prices in Kenya rose 0.77% compared the previous month, coming in above the 0.71% increase observed in November.
January 19, 2017
The composite Purchasing Managers’ Index (PMI), produced by IHS Markit and CfC Stanbic Bank, increased from 53.3 in November to 54.1 in December.