Economic Snapshot for Sub-Saharan Africa

June 19, 2019

Growth prospects slashed for the third successive month in July

Growth prospects for the region were slashed for the third successive month in July, which is now seen growing only marginally above 2018’s modest upturn. This is mainly reflective of expected weak growth in South Africa and the slow recoveries in Angola and Nigeria. Global commodity price swings, extreme weather events and domestic policy uncertainty cloud the outlook.

The Sub-Saharan Africa regional economy is projected to expand 3.2% in 2019, down 0.1 percentage points from last month's forecast. For 2020, the region is forecast to expand 3.7%.

Nigeria Economic Outlook

Available data points to a mild pick-up of activity in Q2, following a subdued performance in Q1 which was weighed by yet another contraction of the vital oil industry. Although the manufacturing PMI fell from April’s five-month high in May, the two-month average lies above that of the first quarter, signaling that business dynamics remain upbeat. Encouragingly, new orders from abroad quickened to a year-to-date high in May. Furthermore, bank lending to the private sector accelerated notably in April, which, coupled with slightly higher business confidence in May, bodes well for overall activity in the quarter. In other news, in late May, President Muhammadu Buhari was sworn in for his second four-year term and signed a NGN 8.9 trillion 2019 budget into law, which was reportedly slightly raised to pay for severance packages to lawmakers and to tackle security threats across the country.

The economy is seen gaining some traction this year. In particular, increased credit provision and the implementation of the minimum wage hike should lend support to consumer demand and the non-oil segment of the economy. However, the slow progress on structural reforms and oil price volatility pose key risks to the outlook.

FocusEconomics panelists see GDP increasing 2.4% in 2019, which is up 0.1 percentage points from last month’s estimate, and 2.8% in 2020.

Angola Economic Outlook

Angola’s economy bounced back from recession in Q4 2018, amid ongoing economic reforms and financial support from the IMF. However, turning to 2019, a further deterioration in the oil industry seems to have weighed on growth. Oil production tumbled through May and exports likely lost further momentum in the second half of Q2 amid a major global oil price downturn. Nevertheless, non-oil sector metrics appear more upbeat. Moderating inflation, lower interest rates and political stability boded well for private consumption and investment activity in January-May. Meanwhile, on 6 June the parliament approved the downwardly revised state budget for 2019 reflecting a weaker than expected oil price outlook. On 12 June, the IMF completed the First Review of Angola’s economic program, unlocking an additional USD 248 million of financing and bringing total disbursements under the arrangement to USD 1.2 billion.

The economy’s chronic dependence on the oil sector will continue to curb overall growth this year, amid volatile global crude prices and weak domestic production. Nevertheless, domestic demand should prop up the mild recovery, as lower inflation and a less tight monetary policy underpin consumer spending, while ongoing economic reforms support investment activity.

FocusEconomics panelists expect GDP to expand 0.2% in 2019, down 0.1 percentage points from last month’s forecast, and 1.5% in 2020.

South Africa Economic Outlook

Rolling blackouts had the economy reeling at the outset of the year. Output fell sharply quarter-on-quarter in Q1 2019 as power cuts, coined “load-shedding” by state-owned Eskom, leveled economic sentiment. Spending and investment each tumbled; the former amid an uptick in unemployment, while the latter on deterred non-residential outlays. Exports, meanwhile, plummeted on weaker motor vehicle sales—although analysts presumed it was a one-off. Second-quarter indicators have been less downbeat, however. Manufacturing gains jumped in April and business confidence has been improving since slumping to a seven-month low in March. Taken together with lower short-term inflation expectations, and especially in light of recent elections-related currency volatility, the ailing economy looks set for a modest rebound through midyear.

Despite a dismal first-quarter outturn, economic activity is expected to pick up this year. That said, the possibility of additional load-shedding will continue sapping economic sentiment and will weigh on spending and investment. In the near-term, policy uncertainty surrounding re-elected President Cyril Ramaphosa’s economic priorities provides some downside risk to the outlook.

FocusEconomics analysts see growth at 0.9% in 2019, which is down 0.3 percentage points from last month’s forecast, and at 1.7% in 2020.

Kenya Economic Outlook

The economy seems to have decelerated slightly in Q1, with drought conditions limiting agricultural production and electricity generation. A downturn in the all-important agrarian sector and slower remittance inflows likely dragged on private consumption growth. Moreover, fixed investment growth was likely modest amid relatively weak business sentiment, although a surge in credit at the end of the quarter might have boosted capital spending somewhat. Turning to Q2, private sector activity deteriorated in April as the delay of the rainy season continued to weigh on horticulture and tea output, before recovering mildly in May on a short-lived downpour. Meanwhile, the FY 2019–20 budget was presented to Parliament on 13 June. Notable changes include a reduced fiscal deficit from 7.4% to 5.6%, which will be achieved through a higher capital gains tax and increased excise duties on cigarettes, wines and spirits, while infrastructure projects take the lion's share of the budget.

Growth is set to moderate this year, with the persistence of drought conditions weighing on the agricultural and electricity supply sectors, which will limit the pace of expansion of private consumption. Meanwhile, the interest rate cap will likely continue constraining the activity of SMEs. That said, infrastructure spending should support a robust outturn overall.

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

Sub-Saharan Africa Monetary & Financial Sector News

Inflation in Sub-Saharan Africa jumped to 9.0% in April (March: 8.6%). Stronger price increases for foodstuffs in Ethiopia and Nigeria were largely behind the acceleration. For the year overall, however, inflationary pressures are seen moderating slightly from 2018, driven largely by increased stability of exchange rates and relatively-tight monetary policy stances.

All central banks across the region stayed put over the past month with the exception of Angola’s, which delivered a cut to the policy rate amid a shrinking monetary base and receding price pressures. As a whole, central bankers are expected to further ease policy this year in a bid to stimulate growth and amid abating inflation.

Most currencies lost ground against the U.S. dollar in recent weeks, most notably the South African rand amid the release of disappointing data. A weakening Ghanaian cedi has also raised concerns over the government’s foreign-currency debt burden. This year, although most currencies seem set to depreciate, they should weaken much less sharply than they did in 2018.

See the Full FocusEconomics Sub-Saharan Africa Report