Economic Snapshot for Sub-Saharan Africa

April 17, 2019

Sub-Saharan Africa: Regional growth set to gain traction this year

Regional growth is set to gain traction this year, largely owing to improved activity in oil-rich Nigeria and Angola, with the latter expected to finally exit its three-year long recession. Faster, albeit still modest, growth in South Africa should also prop up activity. Global trade tensions and commodity-price volatility pose downside risks to the outlook.

Sub-Saharan Africa is projected to grow 3.4% in 2019, down 0.1 percentage points from last month's forecast. In 2020, the region is expected to grow 3.8%.

Nigeria Economic Outlook

President Muhammadu Buhari’s convincing victory in the presidential election was reinforced by his All Progressives Congress (APC) party also winning a majority in the National Assembly, which should make legislating easier ahead. The uncertainty surrounding the election cycle, however, seems to have dented economic activity somewhat, after growth hit an over three-year high in Q4 2018. Although the PMI gained ground in March, largely owing to faster output growth and continued job creation, the quarterly average landed below that of Q4. This, coupled with confidence among firms edging lower in Q1, points to a slight loss of private-sector dynamism at the start of the year. Meanwhile, at the conclusion of its Article IV visit to the country on 3 April, the IMF urged authorities to ramp up reform efforts ahead, particularly in overhauling the tax code, reducing Central Bank intervention in the economy, loosening foreign exchange restrictions and strengthening banking-system regulation.

The ongoing recovery is set to gain momentum this year, largely on the back of improved consumer spending as household incomes benefit from the planned increase in the minimum wage. With the election cycle over, reduced uncertainty also bodes well for investment activity ahead. The economy’s over-reliance on volatile oil production and prices weighs on the outlook, however.

FocusEconomics panelists see GDP increasing 2.3% in 2019, which is unchanged from last month’s estimate, and 2.8% in 2020.

Angola Economic Outlook

Available indicators suggest that weak dynamics persisted at the outset of the year, after the economy likely contracted in Q4 2018. Although the economic activity index edged up in January, which mainly reflected the softer decline of activity in the all-important oil industry, it remains firmly entrenched in negative territory. In the same month, oil exports plunged on an annual basis, contributing to the first monthly trade deficit in a year. Furthermore, the non-oil economy lost momentum yet again, with annual growth in activity falling to a seven-month low in January. Meanwhile, after oil production dipped to its lowest level in over a decade in February, it inched back up in March; however, the quarterly average came notably below that of Q4, hinting that overall economic conditions remained frail in Q1. 

The economy is expected to exit recession this year largely on the back of improving domestic demand. The economy’s high dependence on the oil industry, however, poses the main downside risk to the outlook as disruptions in production and/or softer crude prices would adversely impact fiscal and external accounts.

FocusEconomics panelists project GDP to expand 0.6% in 2019, which down 0.7 percentage points from last month’s forecast, and 1.8% in 2020.

South Africa Economic Outlook

South Africa’s economy has slowly but surely been on the mend since last year’s short-lived recession, but a number of potential setbacks threaten its further recovery. On the heels of last year’s household spending- and net export-led fourth quarter, available first-quarter indicators have confirmed that the economy continues to recover, albeit sluggishly; notably, Moody’s upheld its investment-grade credit rating on 2 April. That said, lower inflation has done little to bolster retail sales, while dwindling business confidence and feeble manufacturing output hint at another round of foregone outlays on machinery and equipment. Rolling blackouts—testament to Eskom’s mismanagement—and general elections scheduled for 8 May are also both taking their toll. Cyril Ramaphosa’s economic reforms are on the line, although opinion polls suggest that his African National Congress will secure another majority.

Lackluster growth is expected to persist this year. Policy uncertainty in the aftermath of this year’s general elections could hinder the short-term economic recovery. That said, a mandate for Ramaphosa on 8 May would ensure follow-through on his last-ditch economic reforms. As the dust settles, higher real wages should help lift economic sentiment.

FocusEconomics analysts expect growth of 1.4% in 2019, down 0.2 percentage points from last month’s forecast, and 1.8% in 2020.

Kenya Economic Outlook

Available data suggests the economy lost steam in Q1 2019. Private credit growth continued to fall in the first two months of the year, likely weighing on private consumption and investment. While the Nairobi High Court ruled the long-standing interest rate cap as unconstitutional last month, some MPs plan to battle hard to uphold the law in the 12-month window awarded to parliament to amend it. Moreover, a decline in remittances in February also likely constrained household spending, while the PMI fell throughout Q1 as weaker domestic demand curbed overall private sector activity. External sector metrics also point to a slowdown: Exports fell sharply in February amid cooling global growth, translating into a wider trade deficit as imports accelerated. Meanwhile, the Treasury recently unveiled plans to issue a third Eurobond to raise USD 2.5 billion to meet debt repayments due in June, signalling deteriorating debt dynamics. 

Despite signs that growth slowed in Q1, the economy will likely sustain a strong pace of expansion this year, thanks to large-scale infrastructure projects under the “Big Four Agenda” and an acceleration in exports driving an upturn in the external sector. That said, the interest rate cap will likely continue limiting the growth of private consumption and fixed investment.

FocusEconomics analysts project GDP growth of 5.8% in 2019, which is unchanged from last month’s forecast, and 5.7% in 2020.

Sub-Saharan Africa Monetary & Financial Sector News

Regional inflation edged down to 8.3% in February (January: 8.5%). In line with last year’s trend, inflationary pressures are seen easing further this year on the back of moderating food prices and relative stability in exchange rates.  A preliminary estimate for March shows that inflation held steady at 8.3%.

All central banks across the region remained put in recent weeks with the exception of Nigeria’s, which unexpectedly cut the policy rate in a bid to spur growth following a tumultuous election cycle. Looking ahead, a dovish policy stance is expected amongst the region’s central banks as inflationary pressures subside. 

The region’s currencies held largely stable in recent weeks. The Ghanaian cedi, however, stood out from its peers once again, recovering some of its losses after coming under severe pressure in March. Most currencies are expected to depreciate this year, although at a softer rate than that seen in 2018. 

See the Full FocusEconomics Sub-Saharan Africa Report