Sub-Saharan Africa’s largest economy to slow growth this year

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JOHANNESBURG (Reuters) – Sub-Saharan Africa’s biggest economy will see a slowdown this year as chronic power problems in South Africa and cash shortages in Nigeria will slow growth, a Reuters poll said.

A strong dollar and severe shortages across the African continent are complicating economic activity and adding to complex inflation dynamics in key countries such as Nigeria, Ghana and South Africa.

Growth in Nigeria and South Africa will slow this year to 2.7% and 0.4%, respectively, from the official figures of 3.1% and 2.0% for 2022, according to a Reuters poll from April 19-24.

These two economies account for more than half of the continent’s gross domestic product and therefore have a significant impact on the region’s economic outlook.

“Two years of high inflation and tightening financial conditions mean a tough 2023 for SSA households,” said Jack Nell, head of Africa macro research at Oxford Economics.

Nell added that the growth hotspots will again be in East and West Africa, but former regional champions Kenya and Ghana will no doubt lose those titles this year.

Ghana is battling the worst economic crisis of a generation, brought on by a depreciating currency, rising debt and high interest rates. Polls suggest growth will slow further from 3.1% last year to 2.1% this year, unlike the previous year’s more than 5.1%.

Kenya’s fiscal sustainability has also recently been called into question, with polls suggesting growth of 5.0% this year, up from 5.6% last year.

This has been a problem for Nigeria since the decline in commodity prices in the years before COVID-19. This is because oil revenues are primarily the primary foreign exchange inflow. The economy has yet to recover from this situation, and the outlook for crude oil price rises is dull.

But the bigger problem in sub-Saharan Africa is very persistent inflation, with Ghanaian authorities grappling with the world’s highest rate of inflation, currently around 45%.

Inflation was expected to slow to an annual average of 14.7% in 2024 from 35.4% this year.

Analysts at Capital Economics believe recent inflation figures from sub-Saharan Africa’s two largest economies are likely to force policymakers in Nigeria and South Africa to raise rates further.

For both, March CPI inflation was higher than February, suggesting that the battle against inflation has not yet been won.

Opinion polls showed South Africa’s inflation rate at 5.8% this year, close to the upper end of the central bank’s comfort level of 3% to 6%, while Nigeria was expected to average 19.0%.

In the current rate hike cycle, South Africa’s central bank has raised interest rates by 425 basis points and Nigeria by 650 basis points.

Capital Economics said pressures on core prices showed no signs of easing in either Nigeria or South Africa and were probably still too high for policy makers’ tastes.

Significant upside risks to the inflation outlook are another theme common to these two economies.

(For more stories from Reuters’ Long Term World Economic Outlook poll package 🙂

Reporting by Vyani Ndaba, Editing by William McLean

Our Standards: Thomson Reuters Trust Principles.

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