Sub Saharan Africa Economic Outlook March 2018

Sub-Saharan Africa: SSA economy ends 2017 on a solid note

March 21, 2018

Preliminary data revealed that Sub-Saharan Africa’s (SSA) economic recovery continued in the final quarter of last year, as the region rebounds from the 2016 growth slump. An estimate compiled by FocusEconomics revealed that GDP increased 3.0% annually in Q4, matching Q3’s result and marking the joint-highest reading since Q4 2015. For the full year 2017, growth came in at 2.7%, up nearly a whole percentage point from 2016’s 1.8%. Higher commodity prices, a favorable global backdrop and improving non-energy sectors helped shore up growth across the region last year. However, growth remains far below the rates tallied during the commodities boom, and many structural issues linger within the individual economies. 

Looking at the fourth-quarter result in detail, activity gained steam in both Nigeria and South Africa—the region’s major players. Nigeria’s economy benefited from healthy agricultural output, although falling oil production weighed on growth. GDP figures surprised on the upside for South Africa, with the economy gaining momentum thanks to a rebound in investment and an acceleration in household spending. Moreover, historical revisions to GDP data revealed that the South African economy is in better shape than previously thought, and that growth has embarked on a moderate recovery path.

Figures for 2017 showed that Angola’s economy rebounded last year, spurred by expansions in both the oil and non-oil sectors. Activity, however, remained moderate overall, as the economy remained mired by low confidence, high inflation and exchange rate misalignments. Meanwhile, growth picked up in DR Congo, while activity was largely unchanged from 2016 in Mozambique. Data for the remaining economies is still outstanding.

Available data for this year suggests that the region’s improved economic momentum likely carried over into 2018. Renewed optimism in South Africa after Cyril Ramaphosa took the reins has spurred higher confidence, and in February the government unveiled a budget for this year that could stave off a credit ratings downgrade by Moody’s. In Nigeria, higher oil prices and easing inflation should buttress economic activity in Q1, while a calmer political scene should help get Kenya’s economy back on track. FocusEconomics analysts expect regional GDP to rise 3.3% in Q1.

Regional GDP growth seen rising to three-year high in 2018

FocusEconomics panelists expect growth to rise to a three-year high this year in the SSA economy. Regional GDP is seen growing 3.4%, up a notch from last month’s forecast. Firmer commodity prices should help put wind in the sails of many countries’ mining and energy sectors, while large-scale infrastructure projects should improve the business environment and support activity. In addition, improved investor sentiment for the region’s financials is supporting bonds and currencies, although it remains to be seen if it will hold up in the face of rising global interest rates. Issues including corruption, security problems, a lack of diversification and poor business climates will keep growth moderate overall. The willingness and ability of authorities to complete structural reforms and tackle bloated fiscal balances will be critical to the region’s future growth prospects. In 2019, growth is seen strengthening to 3.7%.

This month, the bulk of SSA economies, including regional heavyweight Nigeria, saw no changes to their prospects for this year. The forecasts for Ethiopia, South Africa and Tanzania were all upgraded, while Mozambique and Zambia’s projections were revised down. The better-than-expected Q4 GDP result and optimism over the new government’s fiscal consolidation and spending plans boosted South Africa’s outlook. In contrast, a sizable cut was made to Mozambique’s forecast as the economy remains burdened by a heavy debt load and a lack of confidence following revelations of hidden debt. 

Ethiopia is expected to be the fastest-growing economy this year, expanding 7.8%, followed by Ghana (7.1%) and Côte d’Ivoire (6.8%). On the other hand, growth in the region’s major players is expected to be more subdued, and they will be the region’s laggards. Angola is seen growing 1.6%, South Africa expanding 1.7% and Nigeria’s GDP is projected to increase 2.6%.

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NIGERIA | Budget delays threaten to derail public spending

The economic recovery gained steam in the final quarter of 2017, with growth rising to a two-year high on the back of a solid performance in the non-oil sector. Higher crop production boosted the agricultural sector, which offset lackluster activity across other divisions of the economy. Moreover, oil production fell in the fourth quarter, dampening the energy sector’s momentum. Early data for the first few months of 2018 suggests that the economy’s positive momentum carried over into the new year: The PMI pointed to healthy growth in February. Meanwhile, political wrangling on the 2018 budget continues, delaying its approval and the expected boost to public infrastructure spending. The record NGN 8.6 trillion (approximately USD 28.2 billion) budget was first presented in November; however, various ministries have not yet come before parliament to defend their allocations, delaying its implementation.

After a moderate 0.8% expansion in 2017, FocusEconomics panelists expect GDP growth to pick up pace this year and come in at 2.6%, unchanged from last month’s projection. Greater liquidity in the economy and higher oil prices should encourage investment, while households are expected to benefit from lower inflation and an improving labor market. In 2019, growth is seen increasing modestly to 3.0%.

SOUTH AFRICA | Ramaphosa delivers a shift in economic policy

The latest data suggests that the South African economy has turned a corner. National accounts data for the fourth quarter of 2017 surprised on the upside, with a sharp quarter-on-quarter expansion driven by private consumption and fixed investment. In January, manufacturing output expanded for the fourth consecutive month, recording its sharpest increase since June 2016. Survey-based data for February was equally positive; there was a notable jump in the Standard Bank PMI and strong business confidence. Improved confidence in the economy among businesses largely reflected the political developments since Cyril Ramaphosa took over as head of the ANC in December and subsequently replaced Jacob Zuma as president. Ramaphosa, who was sworn in on 15 February, has taken steps to change the direction of economic policy, including a cabinet reshuffling which saw the reappointment of Nhlanhla Nene as finance minister and a budget that will hike taxes to contain the bloated fiscal deficit and potentially help avert a credit rating downgrade.

The presidency of Cyril Ramaphosa should contribute to a recovery in business and consumer confidence, in turn helping buoy growth in private consumption and fixed investment. Higher prices for commodities will sustain growth in mining and in the external sector. FocusEconomics panelists expect the economy to grow 1.7% in 2018, which is up 0.2 percentage points from last month’s forecast, and 1.8% in 2019.

ANGOLA | Government moves to shore up funds

The most recent estimates suggest that the Angolan economy is getting back on its feet. GDP expanded 0.9% in 2017, rebounding from the rate observed in the previous year. Growth was supported by expansions in both the oil and non-oil sectors. The recovery in the non-oil sector is encouraging and it should pick up further steam in the upcoming quarters thanks to the policies implemented by the government such as the devaluation of the kwanza, which should improve foreign currency supply in the economy. However, the fiscal deficit widened last year and reached 5.3% of GDP despite large cuts in public spending. In early March, the government announced that it would issue up to USD 2 billion in Eurobonds in the coming weeks to improve liquidity and cover short-term financing needs.

Economic growth is expected to accelerate this year but the implementation of painful economic reforms and the OPEC output cut deal will constrain economic activity. FocusEconomics panelists expect GDP to expand 1.6% in 2018, which is unchanged from last month’s forecast. For 2019, growth is expected to reach 2.7%.

KENYA | Monthly data turns more positive amid quieter political backdrop

Economic growth is expected to have slid to a five-year low last year on the back of a weak agricultural sector, coupled with heightened uncertainty and disruptions related to the election cycle. Early data for 2018 suggests that the economy is on sounder footing this year: The Stanbic Bank PMI climbed to a 22-month high in February, and a calmer political scene is supporting business sentiment. In addition, the 12-month rolling current account deficit, which has been elevated in recent months, fell in January. However, economic weaknesses persist, with slow private sector credit growth and rising external debt sources of concern. In a piece of good news for the economy, the IMF extended the country’s access to a USD 1.5 billion standby facility in March until 14 September 2018. The extension will give the two parties more time to complete delayed program reviews and negotiate a further extension or new program going forward. Kenya’s IMF program has fallen off track due to missed budget targets and a long election cycle, which caused the fiscal balance to deteriorate.

FocusEconomics analysts held their GDP forecasts unchanged this month and see growth coming in at 5.3% in 2018, supported by improved agricultural output and a more stable political scene. Next year, activity is seen gaining steam, with a GDP expansion of 5.8%. 

MONETARY SECTOR | Price pressures recede in February

Preliminary data revealed that inflation continued its downward trend in February, falling for a fourth consecutive month. Inflation came in at 10.8%, which was below January’s 11.1% reading and marked the lowest level since April 2016. Regional inflation has moderated notably over the past year, thanks to exchange rate stability and improved harvests.

The Consensus Forecast for regional inflation was downgraded this month on the back of lower price forecasts for Cote d’Ivoire, Ghana, Mozambique, South Africa and Uganda. Inflation has fallen rapidly in Mozambique in the past few months, resulting in a 0.3 percentage-point chop to its inflation forecast this month. Accordingly, the Consensus Forecast for inflation in SSA was cut by 0.4 percentage points, and inflation is now seen averaging 10.6% in 2018. In 2019, our panel expects regional inflation to recede and average 9.2%.

Angela Bouzanis, Senior Economist 


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