Sub Saharan Africa Economic Forecast

Economic Snapshot of Sub-Saharan Africa

November 15, 2017

Policymakers turn their attention to spurring growth 

The economic turnaround of the Sub-Saharan Africa (SSA) economy continued in the second quarter, with growth accelerating for a third consecutive period. Comprehensive data showed that regional GDP increased 2.6% annually, notably above Q1’s 1.9% expansion. Recoveries in the region’s largest two economies—Nigeria and South Africa—drove the improvement, while several smaller economies also experienced faster growth.

Incoming data suggests that momentum waned slightly in Q3, and FocusEconomics analysts project that GDP increased 2.5% annually. Low confidence, high unemployment and falling real incomes likely kept growth constrained in South Africa. Ghana’s economy is also projected to have slowed notably after a stellar Q2.

In recent weeks, policymakers across the region have eyed different measures to spur economic activity. The government of Nigeria unveiled a record NGN 8.6 trillion budget (approximately USD 28.2 billion), centered on ambitious capital spending. While large expenditure spending could ramp up growth, doubts persist as to whether the government will meet ambitious expenditure and revenue targets. Political wrangling could delay implementation, as the budget still needs to pass both house of parliament—a process that could take months. Meanwhile, Angola’s new President, João Lourenço, has vowed to dismantle state monopolies, although it is still uncertain if bold reforms will be pushed through. In October, Uganda entered talks with the IMF for a macroeconomic program to develop the economy, however, discussions are likely to be lengthy and little is known about the program’s details.   

Growth prospects sour for 2018

Improved confidence, higher commodities prices and stronger performances in the region’s largest economies should drive firmer growth next year. FocusEconomics analysts see GDP growing 3.3% in 2018, down 0.1 percentage points from last month’s forecast. In 2019, growth is projected to accelerate to 3.7%.

This month’s 2018 GDP forecast was downgraded, on the back of cut projections for Angola, Côte d’Ivoire, DR Congo, Kenya, Mozambique and Uganda. Mozambique’s GDP projection was slashed 0.5 percentage points as FocusEconomics analysts see the country’s large debt burden, ongoing standoff with lender and austerity measures keeping a lid on growth. Forecasts were raised for Botswana and Zambia, while five countries saw no changes to their outlooks.

Ethiopia is expected to be the fastest-growing economy next year, expanding 7.3%. On the flip side, the region’s heavyweights will grow most slowly: South Africa is expected to grow 1.3%, followed by Angola with 2.5% growth and Nigeria with a 2.6% expansion.

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NIGERIA | Government unveils record budget amid stronger economic activity 

Incoming data suggests that activity firmed up in recent months, after the economy returned to growth in Q2. The PMI rose to the highest level since December 2014 in October. Higher oil prices along with a return to normal oil production after the completion of repair work earlier in the year should give a boost to export revenues. In early November, the government presented its 2018 budget, which focuses on stoking growth in the battered economy. The record NGN 8.6 trillion (approximately USD 28.2 billion) budget focuses on capital spending and targets a deficit of NGN 2.0 trillion, slightly down from the deficit in the 2017 budget. To fund the ambitious spending plans, President Muhammadu Buhari stated that the government would borrow over NGN 1.5 trillion, increasing the country’s debt burden. While developing badly-needed infrastructure could boost economic activity, the government has previously fallen short on both revenue and expenditure targets, generating uncertainty as to whether they will meet the 2018 goals. Moreover, the budget must still pass through both chambers of parliaments, a process that can take months and could delay implementation. The 2017 budget was not passed until the middle of the year. 

Higher oil prices and output, combined with large-scale infrastructure projects, should boost growth next year. FocusEconomics panelists see the economy growing 2.6%, unchanged from last month’s forecasts. In 2019, GDP is seen expanding 2.9%.

SOUTH AFRICA | Economic woes take a toll on government finances 

The most recent data suggests that the economy continues to struggle after coming out of a technical recession in the second quarter. In the government’s medium-term budget policy statement released in October, the government confirmed that the fiscal deficit for the 2017/2018 fiscal year is expected to reach 4.3%, widening from the 3.1% fiscal shortfall observed in the previous fiscal year and the largest fiscal shortfall since 2009. The unemployment rate in Q3 remained extremely elevated at 27.7%, the same print observed in the previous quarter, a bad sign for private consumption. Manufacturing production contracted in September, and the latest PMI data from October point to another month of falling output. The latest batch of economic data and the somber outlook given by the government in the budget policy statement have raised the alarm of a possible credit rating downgrade in late November by Moody’s and S&P Global Ratings, which could set the tone for the key ANC leadership contest in December.

The economy is expected to recover in 2018 and 2019 on higher prices for commodities. Growth, however, remains constrained as incessant political noise has stalled implementation of reforms and is weighing on consumer and business confidence. Further credit downgrades or lower prices for commodities could also dent growth. FocusEconomics panelists expect the economy to grow 1.3% in 2018, and 1.8% in 2019

ANGOLA | New president shakes up government, eyes dismantling monopolies   

The speed at which the new president has been initiating measures to jumpstart growth in the economy has caught analysts by surprise. Following his inauguration in late September, President João Lourenço has vowed to dismantle state monopolies and has reshuffled key government positions including the Central Bank governor and the secretary of state for oil. While it is uncertain if the president will succeed in pushing through deep-seated reforms, the changes were promising. They coincided, however, with a credit rating downgrade from B2 to B1 by Moody’s on 20 October. The agency noted that the country’s growth outlook remains constrained, despite higher oil prices. Furthermore, persistent weaknesses and imbalances in the economy such as a foreign currency shortage and a weak banking sector have been exacerbated by an increasing debt burden, which has nearly doubled in four years and could rise even further if the kwanza is devalued. 

The Angolan economy is set to recover moderately in 2018 and 2019 amid higher oil prices. Nevertheless, growth is set to remain constrained as the non-oil sector remains plagued by market distortions, namely FX shortages. FocusEconomics panelists expect GDP to expand 2.5% in 2018, which is down 0.1 percentage points from last month’s forecast. For 2019, growth is expected to reach 2.8%.

KENYA | Political chaos continues to disrupt economic momentum 

Economic conditions have continued to deteriorate as the nation remains in the grips of the worst political crisis in a decade. Private sector activity contracted at a record pace in October, reflected by a sharp drop in the PMI to an all-time low. Asserting an improper electoral process that breached Kenya’s constitution, former MP Harun Mwau launched a legal challenge to Uhuru Kenyatta’s victory in the 26 October election re-run, leading to a political standoff. The main opposition, led by Raila Odinga, withdrew from the race over insufficient electoral reforms, paving the way for Kenyatta to secure more than 98% of votes amid a low turnout. Odinga’s supporters boycotted the election. The Supreme Court has until 14 November to declare a verdict on the petition, which calls for the result to be nullified. Rising economic adversities from protracted uncertainty prompted the government to trim its growth forecast for this year to 5.0%–5.1%, down from 5.5%, on 7 November.

Heavy rains are expected to offer respite to agricultural output and help bolster growth, although the sudden rains have inflicted damage to infrastructure and disrupted maize drying. Prolonged political deadlock, combined with the continuation of the government’s interest rate cap on commercial bank lending rates—which may take more time than anticipated to scrap—will weigh on growth. FocusEconomics panelists forecast GDP growth of 5.3% in 2018, which is up 0.1 percentage points from last month’s forecast, and projects it rising to 5.8% in 2019.  

MONETARY SECTOR | Inflation stabilizes in September

Comprehensive data revealed that price pressures steadied in September, with inflation resting at August’s 12.7%. The result was due to diverging inflationary trends in the region. Seven of the thirteen economies experienced higher price pressures, while inflation stabilized in Nigeria. The remaining countries saw lower inflation. A preliminary estimate for October suggests that regional inflation inched up to 12.8%.

The Consensus forecast for inflation rose by 0.1 percentage points this month and now see inflation averaging 10.1% in 2018.  Behind the result was a large increase in consumer price projections for the DRC, which is suffering from soaring inflation due to a drastic weakening of the currency. In addition, Angola, Ethiopia and Ghana all had their inflation projections upgraded. In 2019, our panel expects regional inflation to average 8.5%. 

Angela Bouzanis

Senior Economist 

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