Growth in SSA economy remains subdued
Growth in the Sub-Saharan Africa (SSA) region slowed in the fourth quarter of last year and GDP expanded 3.0% on an annual basis. As a consequence, the region grew 3.5% in the full year 2015, which was well down from the 5.1% increase tallied in the previous year. Last year’s deceleration was due to a slowdown in nearly all the economies in the region. In particular, growth in Nigeria and South Africa—the region’s two biggest economies—faltered and the countries expanded 2.7% and 1.3%, respectively.
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The sharp decline in commodity prices put severe strains on most of the region’s economies last year, in particular on the oil-exporting countries such as Angola and Nigeria. Both countries have recently sought international loans to help the governments fund their budgets. Moreover, falling oil prices and a reduced supply of U.S. dollars has caused both the Angolan kwanza and the Nigerian naira to depreciate significantly in the parallel markets. Preliminary data show that Nigeria’s economy contracted 0.4% in the first quarter of this year.
At the same time, oil-importing countries such as Cote d’Ivoire and Kenya experienced robust growth rates last year and the expansions were supported by ongoing infrastructure investments as well as by strong private consumption. Low oil prices have benefited these countries, even though the benefits were partially offset by the high exposure to other commodity prices. Elsewhere in the region, countries such as Ghana and South Africa are experiencing slowdowns amid domestic and external headwinds. The South African rand depreciated sharply in the first weeks of May amid a weakening economic outlook, concerns about a possible credit downgrade as well as heightened political uncertainly. The recent rumours of the arrest of the finance minister have also had an adverse impact on the currency.
2016 outlook unchanged following five consecutive downgrades
This year, the region’s economy will likely remain vulnerable and growth is expected to decelerate over last year’s increase. The main external challenges that the region faced last year, such as subdued commodity prices and China’s slowdown along with domestic headwinds such as currency devaluations, political uncertainty and security threats, will likely threaten growth this year as well.
This month, our panel of analysts kept the outlook for Sub-Saharan Africa unchanged following five consecutive downward revisions. Panelists expect the region to expand 3.2% this year. This month’s outlook reflects unchanged forecasts for 4 of the 13 countries surveyed including Kenya and South Africa. Conversely, panelists downgraded their projections for seven other countries including Angola and Nigeria. Finally, Ethiopia and Ghana were the only countries for which the GDP outlook was revised up. For 2017, the panel foresees the SSA economy expanding 4.2%.
Cote d’Ivoire, Ethiopia and Tanzania, in that order, are expected to grow the fastest this year with GDP growth rates above 6.0%. Conversely, South Africa is likely to be the worst performer with a projected GDP expansion of 0.7% this year. Among the other major economies in the region, Kenya and Nigeria will expand 5.8% and 2.7%, respectively.
NIGERIA | Disruptions to oil exports threaten the economy
While global oil prices have recovered significantly from January’s multi-year lows, Nigeria is not benefiting from this move as crude output is sliding due to sabotage on oil infrastructure. Moreover, severe FX restrictions are also hampering economic activity. This situation is adding pressure on GDP growth, which contracted in Q1. Disruptions to oil exports could also derail the implementation of the 2016 budget as it is based on an estimated oil output of 2.2 million barrels per day and an oil price of USD 38 per barrel. The 2016 budget, first announced in December, was stamped into law by President Muhammadu Buhari on 6 May following a series of revisions and scandals, which delayed the final signature. The budget, which amounts to USD 30.1 billion, projects a fiscal deficit of around 2.2% of GDP as Buhari intends to stimulate the economy through an expansionary fiscal policy.
Despite the slight recovery in oil prices, disruptions to oil exports are endangering Nigeria’s economic performance going forward. Moreover, while the recently–approved expansionary budget has the potential to bolster growth, authorities' willingness to maintain the currency peg and capital controls continue to jeopardize any economic recovery. FocusEconomics panelists forecast that GDP will rise 2.7% in 2016, which is down 0.1 percentage points from last month's projection. In 2017, the panel sees GDP growth accelerating to 4.2%.
SOUTH AFRICA | Economy remains under pressure in Q1
South Africa’s economy decelerated in the final quarter of last year and high-frequency data from the first months of 2016 paint a bleak picture of the economy. Manufacturing output contracted in March and the PMI remained in contractionary territory in April. Moreover, news from the labor market was disappointing and the unemployment rate hit the highest level in over a decade. The rand has remained volatile in recent weeks and the partial recovery experienced in April proved to be short-lived. The currency depreciated sharply in the first weeks of May amid a weak economic outlook, concerns about a possible credit downgrade as well as heightened political uncertainly. The recent rumours of the arrest of the finance minister have had an adverse impact on the currency.
The county’s outlook remains fragile as electricity and water supply constraints coupled with low commodity prices will weigh on growth. Moreover, the government’s failure to push forward with fiscal consolidation reforms might provoke a downgrade of the country’s credit rating to junk territory. Following nine consecutive downgrades, this month, the FocusEconomics panel kept its GDP forecast at the previous month’s 0.7% increase. For 2017, the panel projects growth of 1.4%.
ANGOLA | Growth prospects are dim amid low oil prices
The slump in oil prices has severely impacted Angola’s public accounts and pushed the government to request assistance from the IMF and the World Bank. Export earnings have dried up which has resulted in a foreign currency liquidity crunch, forcing commercial banks to stop operations in U.S. dollars. Against this backdrop, credit rating agency Moody’s downgraded Angola’s rating by a notch to B1 and the outlook to negative in late April. Meanwhile, recently-appointed Central Bank Governor Valter Filipe Duarte da Silva stressed the importance of reforming Angola’s fragile banking system and combating corruption and money-laundering. Shortly after making this announcement, two deputy governors of the Bank were sacked by President José Eduardo dos Santos, raising questions as to how the government plans to tackle the deepening crisis.
Low oil prices pose significant challenges to government finances—oil constitutes approximately 95% of exports and 75% of fiscal revenues. Although oil prices have increased this year, they are not expected to reach the high-levels needed to shore-up public finances. FocusEconomics panelists expect that GDP will grow 1.8% this year, which is down 0.1 percentage points from last month’s projection. Next year, the panel sees GDP growth accelerating to 3.1%.
KENYA | Renewal of precautionary deal with the IMF will support the economy
Kenya’s economy gained steam last year. GDP growth sped up mainly on the back of strong public spending and robust private consumption. Sector-wise, the acceleration was driven by agriculture—which benefitted from improved climate conditions—construction, finance and real estate. The key tourism sector, which suffered from security concerns, contracted less last year and rebounded in Q4, suggesting that a recovery is underway. While it is positive that the elevated current account deficit narrowed somewhat last year, the fiscal deficit ballooned and the large twin deficits remain worrisome. That said, March’s renewal of a precautionary facility from the IMF, and its increase to USD 1.5 billion, along with the government’s fiscal consolidation efforts, will support economic stability. High-frequency data suggest that Kenya remained on a solid footing in the first four months of this year: the PMI pointed to expansionary business conditions and the shilling appreciated slightly.
Kenya is set for another fast expansion this year, as growth will be buttressed by infrastructure development, an expected recovery in tourism and a more accommodative monetary policy stance. FocusEconomics panelists see the economy growing 5.8% in 2016, which is unchanged from last month's forecast. In 2017, the panel sees GDP growth accelerating to 6.1%.
INFLATION | Inflation continues its upward trend in April
According to a preliminary estimate, inflation in the SSA region jumped from 11.0% in March to 11.6% in April, thus hitting the highest reading in over seven years. Low commodity prices are taking a toll on the majority of the currencies in the region, thus driving up inflation. Moreover, electricity and water scarcity coupled with food shortages in the southern parts of the continent are fueling inflationary pressures in the region. Looking at the individual countries, April’s increase came mainly as a result of a pickup in Nigeria’s inflation. Elsewhere in the region, inflation increased in Angola and Mozambique, while the other countries experienced a slight decrease in price pressures. FocusEconomics Consensus Forecast panelists expect regional inflation to average 10.5% in 2016, which is up 0.5 percentage points from last month’s estimate. In 2017, inflation is seen easing slightly to 8.6%.
Written by: Dirina Mançellari, Senior Economist
May 25, 2016
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