Sub Saharan Africa Economic Outlook August 2018

Sub-Saharan Africa: Economic Snapshot for Sub-Saharan Africa

July 22, 2018

Recovery kicks into a higher gear in the first half of 2018

A more comprehensive set of data confirmed that Sub-Saharan Africa’s (SSA) economy picked up pace in the first quarter of 2018. Regional GDP increased 3.0% year-on-year in the first quarter, matching last month’s preliminary figure and surpassing the 2.8% expansion recorded in the fourth quarter of 2017. The acceleration came on the back of firmer commodity prices and healthier domestic demand in the first quarter.


Looking at the individual countries, Kenya’s economy gained traction in the first quarter, growing at the fastest pace since Q4 2016. A surging agricultural sector drove the economy’s pick up, as favorable weather conditions boosted output. Cote d’Ivoire and Ghana’s economies also posted strong growth, albeit decelerating slightly from the previous quarter. Activity in Cote d’Ivoire was supported by solid cocoa output and improving investor confidence, while a buoyant oil sector helped drive the expansion in Ghana.

The region’s largest economies were the weakest links in the first quarter. Despite a stronger performance by the energy sector, growth inched down in Nigeria in Q1, hampered by fuel and foreign exchange shortages. Meanwhile, falling investment and subdued consumer spending caused South Africa to record the weakest expansion since Q2 2016. National accounts data for the first quarter is still not available for Angola. The country is expected to emerge from recession this year, although the limited available economic data has so far been weak.

The SSA economy is expected to have gained further traction in the second quarter, and FocusEconomics projects that regional GDP grew 3.4% annually. Higher commodity prices, the recovery’s chief tailwind, continued to support activity throughout the period, while recovering manufacturing activity in South Africa is expected to have buttressed growth.

All eyes are on governments’ reform efforts to improve the region’s prospects. New leaders in Angola and Ethiopia have notably made progress in this regard, with both countries taking steps to further open their economies, including through privatizations in recent months. Meanwhile, policymakers in Kenya are butting heads on whether to remove the long-standing interest rate cap, a move that most analysts argue is critical to improving lending conditions.   

Regional prospects downgraded despite firm commodity prices

The Consensus Forecast for the Sub-Saharan African economy in 2018 was revised down this month, the first downgrade in nearly 10 months. Regional GDP is now seen expanding 3.4% this year, down 0.1 percentage points from last month’s forecast, although still above 2017’s 2.5% expansion. While higher commodity prices, improved agricultural output and recovering domestic demand should drive a faster recovery, challenging business environments, poor infrastructure and high debt loads will continue to weigh on activity. Next year, growth is seen rising to 3.7%.

This month, the region’s two largest economies, Nigeria and South Africa, along with three other economies, all had their growth forecasts cut, driving the downgrade to the regional outlook. A weak first quarter fuelled a downward revision to South Africa’s growth outlook, while political uncertainty and security concerns are weighing on Nigeria’s outlook. On the flipside, two economies had their growth projections raised. Six economies, including Ghana, saw no changes to their forecasts. 

Ethiopia, Cote d’Ivoire and Ghana are expected to be the region’s star performers this year, all growing over 7.0%. On the other hand, the larger economies will record the slowest growth rates. The more mature economy of South Africa is seen growing the slowest at 1.6%, followed by Angola at 1.9% and Nigeria at 2.4%.

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NIGERIA | Government wins regional vote in litmus test ahead of February elections

Growth is expected to have picked up pace in the second quarter, after losing steam at the start of the year. The PMI came in at a historic high in June, rounding out the strongest quarter the index has ever recorded. In addition, firmer oil prices are supporting the energy sector and helping the government build international reserves—which hit the highest level in five years in June—to support its exchange rate regime. On the political front, Nigeria’s All Progressives Congress, the ruling party, unseated the opposition in regional elections in Ekiti state on 14 July. The result bodes well for President Muhammadu Buhari’s reelection bid, as the vote was regarded as a test of the electorate’s mood ahead of presidential and parliamentary votes in February. Political uncertainty had risen after a faction from within the ruling party splintered away at the start of July, declaring it no longer supports Buhari and will challenge him in next year’s election.     

Higher oil prices, improved liquidity and increased public spending in the run-up to the 2019 elections should fuel faster growth this year. However, political uncertainty, as well as security concerns, continues to pose risks to economic activity. FocusEconomics panelists expect GDP to increase 2.4% in 2018, which is down 0.1 percentage points from last year’s projection. Next year, growth is seen rising to 2.9%.            

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SOUTH AFRICA | Incoming data points to firmer Q2

A loss of momentum at the outset of the year left analysts speculating on whether the effects of “Ramaphoria”, the bounce in economic sentiment that followed the new president’s early-year appointment, had worn off. A weak first-quarter reading, held back by contracting investment and moderating consumer spending, highlighted the economic hurdles facing Cyril Ramaphosa, as the country heads in next year’s general election. Available data for the second quarter was, however, more balanced; the emerging-market selloff eased its battering of the rand in June, which should lessen the pinch to consumers following April’s VAT hike. Moreover, despite ticking downward since the beginning of the year, business confidence remained high as firms continued to believe in Ramaphosa’s commitment to structural reforms. Meanwhile, the manufacturing sector appeared to get back on track through May as automotive output inched up, blunting immediate fears over a technical recession in the first half of the year.

Greater political stability and firm credit ratings bode well for the economy in 2018 as full-year economic prospects look set to largely ride out the weak first quarter. Real wage gains should support stronger household spending this year, while the government’s push to attract investment should bolster capital outlays. Nevertheless, fiscal slippage and a slow reform agenda are likely to constrain growth over the medium term. FocusEconomics analysts expect growth of 1.6% in 2018, down 0.3 percentage points from last month’s forecast, and 2.0% in 2019.

ANGOLA | Government reform program wins praise from the IMF

A strong economic recovery has yet to materialize this year, as the economic climate indicator remained firmly entrenched in negative territory in Q1. On a more positive note, President João Lourenço’s government has pursued its Macroeconomic Stabilization Program focused on improving the country’s economic prospects through fiscal deficit reduction and public debt consolidation, as well as the transition to a more flexible exchange rate regime. The private sector is likely to benefit significantly from the structural reforms amid government’s focus on increasing competition in domestic markets. The program has been positively received by the IMF, which commended economic policies and anti-corruption efforts pursued by the government during its first eight months in power.

The economy is forecast to emerge from recession in 2018, on the back of higher global oil prices, which bode well for Sub-Saharan Africa’s second-largest oil exporter. Meanwhile, fiscal consolidation measures, moderating public debt and the transition away from a pegged exchange rate should further buttress economic activity in the long-term. The diversification of exports and imports substitution should also boost growth. FocusEconomics panelists see GDP expanding 1.9% in 2018, which is unchanged from last month’s forecast, and 2.3% in 2019.

KENYA | Economy picks up as political uncertainty fades and agricultural output jumps

Growth has steadily picked up amid fading uncertainty from the political scene following a tumultuous election saga at the end of last year and the agricultural sector’s notable recovery from a crippling drought. National accounts data showed that the economy accelerated for the second consecutive quarter in Q1, expanding at the swiftest pace since Q4 2016. Stronger growth, within-target inflation and an improving external position have held up the shilling and enabled further easing in monetary conditions, laying the foundations for robust economic activity. Private sector activity remained buoyant in Q2, with the PMI registering robust readings throughout the quarter. Meanwhile, the removal of the long-standing interest rate cap remains a contentious point, with the Treasury and Parliament on opposing ends. Pressure to scrap the policy has intensified given the hit to small- and medium-sized enterprises from the constrained ability to access capita

Healthy growth in private consumption and higher investment supported by easing credit conditions, along with a continued expansion in agricultural output on the back of improved weather conditions, should buoy higher growth this year. Stronger investor confidence is likely to encourage a greater inflow of overseas capital into the economy. Furthermore, completion of phase one of the standard gauge railway between Mombasa and Nairobi should restrain import demand and help narrow Kenya’s current account deficit. That said, the pace of recovery could be constrained by the government’s fiscal consolidation plans. FocusEconomics analysts project GDP growth of 5.5% in 2018, which is unchanged from last month’s forecast, and 5.8% in 2019.

MONETARY SECTOR | Inflation inches up in June

Preliminary data revealed that inflation edged up in June, ending the downward trajectory seen over much of the last year. Regional inflation came in at 9.4%, a notch above May’s 9.3%. Higher price pressures were observed in six economies, including Ghana and Kenya. Despite the rise, inflation remains at a low level thanks to greater agricultural output.

The Consensus Forecast for regional inflation was cut a notch this month, and inflation is now seen averaging 10.2% this year. Lower food prices pressures should help contain inflation across the SSA economy, although weak currencies due to global financial market volatility are an upward risk to prices. In 2019, our panel expects regional inflation to recede and average 8.9%.

See the Full FocusEconomics Sub-Saharan Africa Report


Angela Bouzanis


Senior Economist 


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