Sub-saharan Africa: Q1 growth estimate revised down due to weak performance in Kenya
July 19, 2017
More complete data revealed that the economy of Sub-Saharan Africa (SSA) grew at a slower pace in Q1 than initially projected. According to an estimate compiled by FocusEconomics, regional GDP increased 2.0% annually in the first quarter of the year, a notch down from last month’s preliminary 2.1% estimate. Despite the downgrade, the figure still represents a strong acceleration from Q4 2016’s 1.4% expansion as an economic turnaround is taking place in the region after an abysmal 2016 characterized by slowing growth and worsening imbalances in many economies.
The primary driver behind the downgrade to the Q1 estimate was slower-than-expected growth in Kenya. A severe drought caused agricultural production to plummet and the manufacturing sector expanded tepidly. With the challenge of slowing growth and a large drought, the country will head to the polls in August for general elections. Previous votes have been characterized by bouts of violence and risks of instability are present. Early polls point to a victory for incumbent President Uhuru Kenyatta and a continuation of current policy.
Elsewhere in the region, a similar situation with political noise and poor economic activity is unfolding in South Africa. Although the economy is set to rebound from a terrible 2016, the recovery is likely to be weak due to poor investment and a weak labor market. Moreover, a 14-point plan unveiled in July by Finance Minister Malusi Gigaba failed to offer any groundbreaking solution to the economy’s slump and the government has seen its popularity being eroded due to a corruption scandal, which has led to calls for the president to step down.
Political jitters weigh on growth outlook
FocusEconomics analysts trimmed their forecasts for Sub-Saharan Africa for a third consecutive month as a soft start to the year and politics dampen prospects. Regional GDP is now seen expanding 2.5% in 2017, down 0.1 percentage points from last month’s estimate. In 2018, growth is seen gaining pace as GDP is expected to increase 3.5%.
The downgraded 2017 outlook is due to downward revisions for the 6 of the region’s 13 economies. Lower growth prospects were seen for Kenya and South Africa, as political uncertainties combine with weak economic momentum. On the other hand, forecasts were raised for Angola, Botswana, Mozambique and regional-giant Nigeria, while three economies’ projections were left unchanged.
Cote d’Ivoire and Ethiopia are expected to be the fastest-growing economies this year, both expanding 6.8%. On the flip side, the regional heavy-weights are the poorest performers with South Africa expected to grow a weak 0.7% in 2017, followed by Nigeria with a 1.3% expansion.
NIGERIA | Stock market surges as dollars flow into economy
The economy looks to be slowly on the mend, with the PMI remaining in positive territory in Juneand the non-oil sector returning to growth in Q1, while the recent approval of the long-delayed 2017 budget should provide greater policy certainty in the months ahead. In addition, oil production has increased so far this year as the threat from Niger Delta militants recedes. However, despite initially being excluded from further OPEC output cuts, there is now talk of including Nigeria in the deal in a bid to curb the supply of oil on the market and boost prices, which could hamper the sector’s return to full strength. Encouragingly, the foreign exchange window introduced in April, which allows buyers and sellers to agree on an exchange rate, is succeeding in attracting dollars from abroad; over USD 3 billion have been traded since the launch, and the stock market has boomed in recent months.
The economy should pick up speed this year thanks to greater oil production, a solid agricultural sector and strong public capital spending. However, continuing foreign exchange distortions, limited private sector credit and uncertainty over whether measures put forward in the Economic Recovery and Growth Plan (ERGP) will see the day could dampen the expansion. Panelists participating in the FocusEconomics Consensus Forecast expect the economy to grow 1.3% in 2017, up 0.1 percentage points from last month’s forecast, and 2.8% in 2018.
SOUTH AFRICA | Currency nosedive adds to economy’s woes
2017 is set to be a challenging year. A decline in exports, slower growth in private consumption and fixed investment caused the economy to contract in Q1 and enter into its second technical recession since 2009. Fixed investment is expected to remain depressed following the credit downgrade by all three major agencies in Q2. The ongoing political noise will also continue to be a brake on investment until ANC’s December electoral conference at the earliest, which should clear up the situation. Adding to the gloom, manufacturing output declined in May and the manufacturing PMI recorded its first contraction in almost a year in June. The currency has also taken a hit in recent weeks following a report released by the government’s anti-corruption body. The report sparked fears that the independence of the Central Bank could potentially be undermined by the government’s efforts to revive the ailing economy.
South Africa is expected to recover marginally from last year’s seven-year low although it is expected to remain subdued and may be subject to further downward revisions. The weak recovery is dependent on higher prices for the country’s key export commodities and higher agricultural output following 2016’s disastrous harvest. Panelists participating in the FocusEconomics Consensus Forecast project that the economy will grow 0.7% in 2017, which is down 0.2 percentage points from last month’s forecast, and 1.4% in 2018.
ANGOLA | Subdued oil prices threaten outlook
The economy continues to look wobbly, with prices for the country’s Cabinda oil remaining depressed despite the announcement of an extension to the OPEC deal. Although Angola continued to comply assiduously with oil production cuts in June, overall group compliance fell to the lowest level in six months; this doesn’t bode well for prices, which are already substantially below breakeven level, going forward. The country’s fiscal position could take a hit as a result, with the problem potentially exacerbated by the possibility of expenditure overruns ahead of August’s presidential elections. In addition, the scourge of high inflation remains present, despite tight monetary policy, provoking economic uncertainty. However, this is far from the only gripe of firms operating in the country; Q1’s economic climate indicator showed that firms are also struggling with weak internal demand and limited access to credit and materials.
Growth will be paltry this year due to low business confidence and a non-oil sector still hobbled by limited access to foreign exchange and high inflation. Looking further ahead, a moderate uptick in oil production should raise growth slightly. Analysts expect GDP to expand 1.6% in 2017, up 0.1 percentage points from last month’s forecast, and 2.5% in 2018.
KENYA | Tensions rise as election looms
Concerns are growing over the economy’s dwindling performance as the preliminary GDP estimate showed the pace of expansion deteriorated to 4.7% annually in Q1. A severe drought has ravaged the country and induced a notable contraction in agricultural production, which along with a deceleration in private sector credit and electricity supply growth, has propelled the downturn. Amid a tumultuous political setting, private sector business activity continued to tumble into Q2. A series of turbulent events has gripped the country in recent weeks as election fever kicks in. Kenyans are set to head to the polls and cast their ballots on 8 August in what is anticipated to be a fiercely contested election. Attacks by a notorious militant group in the coastal village of Jima, the sudden death of Interior Security Minister, Joseph Nkaissery, and the hospitalization of opposition leader, Raila Odinga, due to suspected food poisoning have sparked fresh tensions in the country. Adding to the political strain, a ban on gas imports from Tanzania which was instituted two months ago continues to be upheld, putting pressure on the two countries’ relationship.
Economic activity is expected to weaken going forward as the drought persists, stifling agricultural output, and political uncertainties weigh on private sector lending, impeding investment decisions. Panelists now expect GDP growth to slow to 5.0% in 2017, which is 0.2 percentage points lower than last month’s forecast, before picking up slightly to 5.5% in 2018.
INFLATION | Price pressures moderate in June
Inflation fell for a fourth consecutive month in June, easing from May’s 13.0% to 12.5%, according to preliminary data compiled by FocusEconomics. While inflation is trending downwards, price pressures remain elevated in a number of economies limiting space to stimulate economic growth. In July, Kenya’s Central Bank held its main policy rate unchanged, while policy makers in Angola cut rates.
Price pressures are seen remaining high this year and the analysts we surveyed this month expect regional inflation to average 12.4% in 2017, which is unchanged from last month’s forecast. Next year, inflationary pressures should begin to recede and inflation is projected to average 9.4% in 2018.