Economic Snapshot for Sub-Saharan Africa

November 13, 2019

Available data points to a downturn in the third quarter following the second quarter’s upswing, as a series of breakdowns in Eskom’s coal power plants triggered a burst of rolling blackouts. Consequently, electricity supply swung to contraction in the quarter, as the debt-ridden state-owned utility struggles to stay afloat, hampering overall activity. Moreover, manufacturing production and business confidence both fell in Q3, while retail sales growth slowed in the first two months of the quarter. On 1 November, Moody’s opted to uphold its rating on the country’s sovereign debt rather than downgrade to junk, despite the medium-term budget policy statement released on 30 October revealing a bleak fiscal picture ahead. The outlook, however, was cut from stable to negative, underlining the material risk that the government will likely fail to restore fiscal discipline, especially given an apparent lack of political capital to implement tough reforms. This suggests that the country is unlikely to retain its final investment-grade rating in the medium-term; a downgrade to junk would trigger sizeable capital outflows.

Growth is projected to accelerate next year as power constraints ease and boost activity. Private consumption is seen gaining steam, while fixed investment is expected to rebound amid improved investor sentiment and favorable monetary conditions. That said, challenges on the fiscal front are set to remain high and could worsen if Eskom needs yet more funds.

FocusEconomics analysts see growth at 1.3% in 2020, which is down 0.1 percentage points from last month’s forecast, and 1.7% in 2021.

Sub-Saharan Africa Monetary & Financial Sector News

Inflation fell to 4.1% in September from 4.3% in August, remaining within the South African Reserve Bank’s (SARB) target band of 3.0%–6.0%. While rapidly rising electricity prices and a weak rand have exerted upward pressure on prices, muted economic activity has kept inflation relatively moderate. Inflation is seen rising next year on stronger domestic demand. 

The SARB kept the repo rate unchanged at 6.50% at its latest meeting ending 19 September. The decision to stay put seems to have been largely motivated by the Bank’s ongoing effort to anchor inflation expectations close to the 4.5% midpoint of the inflation target range. Our panel is split whether or not the Bank will cut rates next year.

The rand strengthened following Moody’s decision on 1 November not to downgrade the country’s sovereign debt to junk status, opting to keep it at investment grade for now. On 8 November, the ZAR traded at 14.79 per USD, appreciating 3.2% over the same day of the previous month. Strong structural headwinds and weak growth prospects will weigh on the rand next year.