Coronavirus adds to headwinds facing African economies - Capital Economics
Africa Economics

Coronavirus adds to headwinds facing African economies

Africa Economics Weekly
Written by Virag Forizs

In line with our new, more pessimistic global outlook, we’re in the process of downgrading our 2020 growth forecasts for most African economies. Even if actual infection numbers in the region remain small, lower commodity prices will weigh on demand. And the latest figures all suggest that African economies were already before the recent outbreak; South African GDP contracted faster than anyone expected in Q4. We expect that policymakers will react with rate cuts, starting in South Africa later this month.

Coronavirus: Counting the costs in Africa

The accelerating spread of the coronavirus has prompted us to update our African economic forecasts. We’ll publish final numbers after today’s OPEC+ meeting gives us a clearer sense of global oil prices, but we expect to revise down our 2020 growth forecasts by about 0.2-0.5%-pts.

So far, at least, the number of confirmed coronavirus cases in Sub-Saharan Africa remains small. (Cameroon reported its first case this morning, joining Senegal, Nigeria, and South Africa.) Of course, the situation could change rapidly, especially given that the region’s weak public health systems would struggle to contain a growing outbreak.

And even if Africa manages to avoid infections on a large scale, the virus is already weighing on economies via indirect channels such as reduced tourism spending and lower commodity prices. We expect that lower oil prices will be the channel through which the virus causes most economic damage in Africa.

Brent crude fell to US$48/barrel this morning, down 26% since the start of the year. Even if, as we expect, prices recover later this year, the decline will cut incomes by up to 5% of GDP in the most oil-dependent countries. African exporters that sell their crude to China are also suffering due to reduced volumes as demand falters. (For our latest coronavirus coverage, please consult this dedicated page on our website.)

Recent date: Fragile even before the virus

Figures released this week underlined the fact that many African economies were already struggling even before the spread of the virus began to disrupt the global economy.

South African GDP contracted by more than we – or anyone else – had expected in Q4, which tipped the country into its second recession in as many years. More timely figures were also pretty downbeat. While electricity output picked up a touch following December’s terrible result, it remained weak. And the country’s manufacturing PMI fell to a ten-year low of 44.3 in February.

Other economies were also struggling. Kenya’s PMI dipped in February. And news that Dangote Cement (one of Nigeria’s top manufacturers) cut output added yet more evidence that policymakers’ unconventional measures to support the manufacturing sector are in fact harmful. Indeed, Manufacturing growth slowed markedly in Q4.

Policy Response: Central banks will take the lead

We think that African policymakers are likely to follow the example of other EMs and loosen policy in line with the Fed.

In South Africa, we expect that the repo rate will be cut by 25bp in both March and in May. The Fed’s cut may reduce pressure on the rand, as will the narrowing of the current account deficit. Policymakers in Nigeria and Kenya are also likely to cut their key rates.

The fiscal response, however, is likely to be more muted. Oil exporters are seeing their revenues fall, and will have little ability to provide stimulus. In South Africa and Kenya, governments were already facing worsening public debt positions that limited fiscal space.

The week ahead

Hard activity data from South Africa’s mining and manufacturing sectors will indicate whether weakness at the end of 2019 continued into January. We suspect so.


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (GMT)

Previous*

Median*

CE Forecasts*

10th Mar

Mau

Interest Rate Announcement

3.35%

3.35%

11th Mar

Nga

Oil Production (Feb, bpd mn)

1.8

Ang

Oil Production (Feb, bpd mn)

1.4

12th Mar

SA

Mining Production (Jan)

(09.30)

-2.4%(+1.8%)

-0.5%(+1.2%)

SA

Manufacturing Production (Jan)

(11.00)

-2.8%(-5.9%)

-1.0%(-5.1%)

13th Mar

Bot

CPI (Feb)

(+2.2%)

(+2.3%)

Also expected during this period:

12th – 19th

Nga

Trade Balance (Q4, NGN)

+1,389.3bn

Selected future data releases and events

16th Mar

Nga

CPI (Feb)

(+12.1%)

18th Mar

Gha

CPI (Feb)

(+7.8%)

SA

CPI (Feb)

(08.00)

+0.3%(+4.5%)

SA

Retail Sales (Jan)

(11.00)

-3.1%(-0.4%)

19th Mar

SA

Interest Rate Announcement

6.25%

24th Mar

SA

Labour Market – Quarterly Employment Statistics (Q4)

-0.3%(+0.8%)

Nga

Interest Rate Announcement

13.50%

26th Mar

Zam

CPI (Mar)

27th Mar

SA

South Africa Rated by Moody’s

30th Mar

Gha

Interest Rate Announcement

16.00%

SA

Budget Balance (Feb, SAAR, ZAR)

(13.00)

-47.5bn

31st Mar

Uga

CPI (Mar)

(+3.4%)

Ken

CPI (Mar)

+1.4%(+6.4%)

Bot

GDP (Q4)

(+3.1%)

(+3.0%)

SA

Trade Balance (Feb, SAAR, ZAR)

(13.00)

-1.9bn

1st Apr

SA

Absa Manufacturing PMI (Mar)

(10.00)

44.3

SA

Electricity Production (Jan)

(12.00)

Ken

Markit/Stanbic Bank PMI (Feb)

(08.30)

Also expected during this period:

15th – 22nd

Ang

CPI (Feb)

16th – 27th

Ang

Interest Rate Announcement

15.50%

16th – 30th

Uga

GDP (Q4)

(+2.7%)

19th – 26th

Ken

Interest Rate Announcement

8.25%

*m/m(y/y) unless otherwise stated

Sources: Bloomberg, Capital Economics

Main Economic & Market Forecasts

Table 1: GDP & Consumer Prices (% y/y)

Share of

World 1

2008-17

Ave.

GDP

Consumer Prices

2018

2019

2020*

2021

2018

2019

2020

2021

Nigeria

0.86

4.4

1.9

2.0

2.2

2.5

12.2

11.4

12.0

11.5

South Africa

0.57

1.5

0.8

0.3

0.5

1.0

4.6

4.1

4.6

4.7

Angola

0.14

2.4

-1.2

-0.5

-1.5

1.0

20.3

17.3

24.0

18.0

Kenya

0.14

5.6

6.3

5.5

6.0

6.0

4.7

5.2

5.5

5.5

Ethiopia

0.17

9.7

7.7

7.5

8.5

8.0

13.8

15.7

15.5

11.5

Ghana

0.15

7.0

6.5

6.0

7.0

6.0

9.8

8.7

8.0

8.0

Côte d’Ivoire

0.08

6.1

7.4

7.0

7.5

7.0

0.4

0.5

1.5

1.5

Tanzania

0.14

6.5

5.4

5.5

5.8

5.5

3.5

3.4

4.0

6.0

Mozambique

0.03

3.7

3.3

2.5

5.0

4.0

3.9

2.8

4.0

4.0

Uganda

0.07

5.3

5.8

5.5

5.5

5.0

2.6

2.9

5.5

6.5

Rwanda

0.02

7.2

8.6

10.0

9.0

8.0

1.4

2.4

6.0

4.0

Botswana

0.03

3.7

4.5

3.5

4.0

3.5

3.2

2.8

4.0

4.0

Zambia

0.05

5.6

3.7

2.0

3.0

3.5

7.5

9.1

8.5

8.0

Mauritius

0.02

3.7

3.8

3.5

4.0

4.0

3.2

0.4

2.0

3.0

Namibia

0.02

3.4

-0.1

-1.0

2.0

2.0

4.3

3.7

4.5

6.0

Sub-Saharan Africa

2.5

4.2

2.9

2.7

3.1

3.4

8.8

8.4

9.2

8.6

Sources: Refinitiv, Capital Economics. 1) % of GDP, 2018, PPP terms (IMF estimates). (*Note: 2020 forecasts are currently being revised)

Table 2: Central Bank Policy Rates

Policy Rate

Latest

(6th Mar.)

Last Change

Next Change

Forecasts

End

2020

End
2021

Nigeria

MPR

13.50

Down 50bp (Mar ’19)

Down 50bp (Mar. ’20)

12.50

12.00

South Africa

Repo Rate

6.25

Down 25bp (Jan ’20)

Down 25bp (Mar. ’20)

5.75

5.75

Angola

BNA Rate

15.50

Down 25bp (May ’19)

Up 100bp (Q1 ’20)

20.00

17.00

Kenya

Central Bank Rate

8.25

Down 25bp (Jan ’20)

Down 25bp (Mar. ’20)

7.75

7.50

Ghana

Policy Rate

16.00

Down 100bp (Jan ‘19)

Down 50bp (Q3 ’21)

16.00

15.50

Uganda

Central Bank Rate

9.00

Down 100bp (Oct ’19)

Down 100bp (Q1 ’20)

9.00

10.00

Sources: National Sources, Capital Economics

Table 3: Key Market Forecasts

Forecasts

Forecasts

Currency

Latest
(6th Mar.)

End

2020

End

2021

Stock Market

Latest

(6th Mar.)

End

2020

End
2021

Nigeria

NGN (Official)

306

307

307

NGSE

26,336

32,000

34,000

NGN (Nafex)

365

365

365

South Africa

ZAR

15.7

16.25

16.50

JALSH

51,610

56,850

62,525

Angola

AOA

487

475

475

n/a

Kenya

KES

103

100

100

NSE 20

2,419

3,000

3,000

Ghana

GHS

5.50

6.50

6.50

GSECI

2,188

2,500

2,700

Uganda

UGX

3,700

4,300

4,500

UGSE

1,716

1,900

2,100

Sources: Bloomberg, Capital Economics


Virág Fórizs, Emerging Markets Economist, +44 20 7808 4079, virag.forizs@capitaleconomics.com