13 July 2018 ( Lagos ) : For the rest of the year, economy in SSA is expected to remain strong on the back of higher commodities prices, favorable weather conditions and improved consumer spending – amidst moderating inflation. The upbeat growth further underpinned IMF’s growth forecast for SSA of 3.4% (FY 17: 2.8% YoY) emanating from modest pickup in Nigeria (+130bps to 2.1% YoY) and South Africa (+20bps to 1.5% YoY). 

To the former, sustained growth in oil GDP and agriculture sector as well as recovery in services sector is expected to keep growth picture upbeat. For South Africa, IMF revised its growth forecast to 1.5% YoY (previously: +0.9% YoY) on expectation of better economic reforms under the new government of Ramaphosa. To add, continued recovery in the agriculture and mining sectors is expected to jolt output. Growth in the rest of SSA is projected to remain strong with Cote ‘d Ivoire (+7.4% YoY), Senegal (+7.0% YoY) and Ethiopia (+8.5% YoY) expected to lead the way on the back of favorable weather conditions and improved consumer spending.

With economic reforms expected to be consolidated in the MENA region, growth is projected to improve going into the rest of the year. IMF forecasts MENA’s economic growth to print at 3.0% YoY (FY 17: 1.3% YoY) driven by uptick in Saudi Arabia (+1.7%) and Egypt (+5.2%). Specifically, Saudi Arabia is expected to exit recession following moderate recovery in crude oil production and higher oil prices. 

To add, economic growth is also expected to be supported by non-oil GDP as the impact of structural reforms kicks in. For Egypt, growth is forecast to remain strong on the back of resilient private consumption and investment. On the downside, Morocco’s GDP is projected to slow driven by agriculture sector as lack of rainfall drags agriculture output.

On currency, whilst analysts expect rate normalization to remain the key driver of FPI outflows in SSA and MENA region, they believe higher proceeds from commodity exports will support currency resilience through the rest of the year. Evidently, despite the recent sell-offs in Nigeria, they believe the apex bank has enough ammunition to keep the naira stable. 

Elsewhere, Saudi Arabia’s government is clearly thickheaded to currency devaluation despite external imbalances, even as the impact of Iran’s government tactics of ‘stability by the gun’ will significantly weather the storm and by extension, stem the rot. Furthermore, nonetheless widespread economic reforms in the MENA region, analysts expect pass-through from currency stability to keep a tight lid on inflation even as they believe the positive impact of high base effect of prior year will continue to drive inflationary deceleration in SSA.

Reporting for EasyKobo on Friday, 13 July 2018 in Lagos, Nigeria

Source: ARM Securities Limited

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