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SA recovery falters, wage talks, Kenya’s soft start to 2022

Recent flooding in a key province and warnings this week that power cuts could reach unprecedented levels are the latest in a long list of blows to South Africa’s economy that have repeatedly stifled any emerging growth momentum. Meanwhile, South African trade unions’ opening offer in public sector wage negotiations will almost certainly be rebuffed, but we expect that the government will ultimately concede some ground. Elsewhere, Kenya’s statistics office confirmed this week that its economy expanded by 7.5% last year but more timely indicators point to weakness so far this year.
China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. Register now.

6 May 2022

Debt problems building

Sub-Saharan Africa’s recovery is likely to remain slow going and our growth forecasts are generally below the consensus. While spillovers from the war in Ukraine will boost a handful of economies – notably Angola and Nigeria – in others, the fallout will cause economic pain. High inflation is likely to prompt monetary policymakers across the region to hike interest rates, although we think South Africa’s central bank will do so more gradually than most currently expect. Meanwhile, public debt problems will grow. Risks are highest in Ethiopia and Ghana, while South Africa faces a slow-burning problem. EM Drop-In (5th May, 10:00 EDT/15:00 BST): Join Shilan Shah for our latest monthly session on the big macro and markets stories in EMs. This month, Shilan and the team will be talking Russian gas, FX weakness and surging food prices. Register now

4 May 2022

Fiscal positions largely going from worse to bad

Fiscal positions across Sub-Saharan Africa have been a persistent source of concern since the onset of the pandemic – and in some cases, even before. And the commodity price moves resulting from the war in Ukraine will be unfavourable for public finances in most countries. The cost of subsidising fuel, fertiliser or food products is set to rise sharply. On top of this, recent floods in South Africa and a severe drought in East Africa will probably prompt a fiscal response as the authorities step in to support relief and reconstruction efforts. And we think that policymakers will loosen the fiscal purse strings ahead of upcoming elections in Kenya and Angola. The bottom line is that sovereign balance sheets in the region are unlikely to improve as quickly as many hope for.

28 April 2022
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Who holds frontier markets’ foreign debt?

China and private bondholders have become increasingly important creditors to governments of many frontier markets, including some of those that are now finding themselves in debt distress. This is likely to make any debt restructuring talks more complex and longer which could, in turn, could delay bailouts from the IMF.

War in Ukraine: a varied impact across Africa

Spillovers from the war in Ukraine will have a varied impact across Sub-Saharan Africa. Large oil producers such as Nigeria and Angola are benefitting from the surge in global oil prices but, for the rest of the region, it is worsening their terms of trade. That is a cause for concern for countries already running large current account deficits, such as Kenya, particularly given that external financing conditions have tightened at the same time. The Ghanaian cedi has been a notable casualty among African currencies, further fuelling concerns about its fragile public finances. Meanwhile, with higher commodity prices adding to inflation pressures and the Fed turning more hawkish, central banks may tighten monetary policy more quickly.

Assessing public debt risks in Africa

In this Update, we roll out our sovereign debt heat map that provides a snapshot of debt risks across Sub-Saharan Africa. The pandemic has increased debt burdens across the continent and, with elections on the horizon in many places, governments are unlikely to push through the austerity needed to stabilise debt. While the rise in commodity prices caused by the war in Ukraine is a positive for some (e.g. Angola), tighter external financing conditions pose significant risks for others (e.g. Ghana). Long Run Outlook Drop-In (23 March, 11:00 EDT/15:00 GMT): What will be the lasting impacts of the war in Ukraine? What legacies will the pandemic leave? What does a future of higher inflation mean for economies and markets? Neil Shearing hosts this special discussion with senior economists about the long-term investing outlook on Wednesday. Register here.

Mixed market reaction in Africa to Russia-Ukraine war

Elevated commodity prices on the back of the Russia-Ukraine crisis will almost certainly add to inflationary pressures across Sub-Saharan Africa. High prices for energy, metals and agricultural products that African countries export seem to have shielded most currencies in the region from sinking amidst a deterioration in risk appetite. But there are some signs of stress. In particular, the Ghanaian cedi has weakened sharply and its sovereign dollar bond spreads have widened, further increasing its public debt vulnerability. EM Drop-In (Thur. 3 March, 15:00 GMT) We’re discussing the impact of Russia-Ukraine on emerging markets in a special 20-minute briefing this Thursday. Registration details.

Omicron waves in the rear view mirror

Waves of the Omicron variant that spread across the region in December have subsided sharply in recent weeks. And timely survey and mobility data point to a smaller hit from these latest waves compared with previous ones. But the good news will probably be in short supply going forward. Low vaccination rates mean that the region remains vulnerable to future virus waves. What’s more, other headwinds are likely to grow. We expect commodity price moves to turn increasingly unfavourable. And policy support will be thin on the ground with officials pursuing austerity and/or shifting to tighten monetary policy.

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