Weakness in SA, Kwanza finds its feet, Kenya rate cap cut - Capital Economics
Africa Economics

Weakness in SA, Kwanza finds its feet, Kenya rate cap cut

Africa Economics Weekly
Written by John Ashbourne

This week’s South African activity data added to the evidence that the economy faltered in Q3. We’ll know more when retail and mining figures are published next week, but there is an underappreciated risk that the economy contracted again. Kenyan policymakers finally dropped their self-defeating lending rate cap this week, whereas their Angolan peers seem to have walked back plans to fully liberalise the FX market.

South Africa: Inflation, growth both weak

Figures out this week suggested that South Africa’s economy faltered in Q3 and that both inflation growth will be soft in the last quarter of the year.

Manufacturing production figures were even worse than most analysts had expected, with September figures showing that output fell by a seasonally-adjusted 0.9% q/q in Q3. We will know more about how the economy performed last quarter when retail and mining figures are published next week. But we think most analysts are underestimating the risk of an outright fall in GDP. (See here.) Early signs suggest that the economy fared poorly in Q4; the most widely-used measure of business confidence fell in October.

Inflation will also probably remain soft this month. South Africa’s fuel regulator cut petrol prices again this week which will pull down petrol price inflation in November. (See Chart 1.)

Chart 1: Regulated Fuel Prices & Petrol Price Inflation (% y/y)

Source: Refinitiv, Capital Economics

South Africa: Will the SARB respond?

Soft inflation and weak growth clearly pose a risk to our view that policymakers will leave their key rate on hold this month. A third of the analysts polled by Bloomberg now expect another cut.

But we think that the window for further loosening has probably closed. While inflation will remain soft in November, it will pick up in December as the downward pressure from low oil prices fades. And we think that recent fears about the stability of South Africa’s government debt, which have put pressure on the rand in recent weeks, will also weigh on policymakers’ minds. We now expect that the currency will continue to weaken over the coming months, ending the year at ZAR15.5/USD.

Angola: Is the BNA losing its nerve?

Having promised a market-determined exchange rate, Angolan policymakers have announced new FX auctions at which they will provide dollar to the market in an effort to guide the exchange rate. This intervention seems to have provided some support to the currency, which has strengthened by almost 7% against the US dollar since hitting a low of AOA490/USD on Nov 3rd.

The direction of Angolan policy is currently unclear. But even if the authorities do follow through with their promise of a market-determined rate, we think that the big currency falls are now behind us. Angola’s current account is in balance, and the real effective exchange rate is now below its long-run average. Attention will now turn to the effect of the currency fall on the economy and the stability of the government’s debt load. We will be publishing an Update on this next week.

Kenya: Government finally cuts the cap

The abolition of Kenya’s controversial cap on commercial lending rates will help to accelerate credit growth, providing a boost to the economy. Local lenders and the central bank both welcomed the decision, which faced significant opposition in parliament. Credit growth in the country has been tepid since the cap was first imposed in late 2016.

What to watch in the coming week

South African mining and retail sales figures released next week are likely to confirm that the economy struggled in Q3. Any additional beer sales prompted by South Africa’s recent rugby world cup victory won’t show up until Q4.


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (GMT)

Previous*

Median*

CE Forecasts*

11th Nov

No Significant Data Releases

12th Nov

Ang

CPI (Oct)

(+16.5%)

(+18.5%)

13th Nov

Gha

CPI (Oct)

(+7.6%)

(+7.5%)

(+8.5%)

SA

Retail Sales (Sep)

(11.00)

-0.9%(+1.1%)

+0.6%(+1.9%)

14th Nov

Nga

CPI (Oct)

(+11.2%)

(+11.2%)

(+11.0%)

SA

Mining Production (Sep)

(09.30)

+0.3%(-3.2%)

-0.1%(-2.5%)

15th Nov

Bot

CPI (Oct)

(+3.0%)

(+2.5%)

Selected future data releases and events

20th Nov

Mau

Interest Rate Announcement

3.35%

Zam

Interest Rate Announcement

10.25%

SA

CPI (Oct)

(08.00)

+0.3%(+4.1%)

21st Nov

SA

Interest Rate Announcement

6.50%

25th Nov

Ken

Interest Rate Announcement

9.00%

Nga

GDP (Q3)

(+1.9%)

Gha

Interest Rate Announcement

16.00%

26th Nov

Nga

Interest Rate Announcement

13.50%

28th Nov

Zam

CPI (Nov)

(+10.7%)

29th Nov

SA

Budget (Oct, SAAR)

-0.6bn

SA

Trade Balance (Oct, SAAR)

+5.2bn

30th Nov

Ken

CPI (Nov)

(+5.0%)

Uga

CPI (Nov)

(+2.5%)

2nd Dec

Nga

FBN Capital Manufacturing PMI

SA

Absa Manufacturing PMI

(09.00)

48.1

3rd Dec

SA

GDP (Q3, q/q(y/y))

(09.30)

+3.1%(+0.9%)

4th Dec

Ken

Markit/Stanbic Bank PMI (Nov)

(07.30)

53.2

5th Dec

Bot

Interest Rate Announcement

4.75%

SA

Current Account (Q3, ZAR)

(09.00)

-204bn

SA

Electricity Production (Oct)

(11.00)

(-0.5bn)

6th Dec

Mau

CPI (Nov)

(+0.4%)

Also expected during this period:

20th – 27th

Nga

Current Account (Q3)

-$2.9bn

2nd – 9th

Uga

GDP (Q3)

(+5.4%)

4th – 11th

SA

SACCI Business Confidence (Nov)

91.7

*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

11.0

11.0

11.5

South Africa

0.58

1.5

0.8

0.5

0.5

1.0

4.6

4.3

5.0

4.8

Angola

0.15

2.4

-1.7

-1.0

1.0

1.5

20.3

18.0

30.0

18.0

Kenya

0.13

5.6

6.3

5.8

6.0

5.5

4.7

5.2

5.0

5.5

Ethiopia

0.16

9.7

7.7

7.5

8.5

8.0

13.9

15.0

12.0

10.0

Ghana

0.14

7.0

6.5

6.5

7.0

6.0

9.8

9.0

9.0

8.5

Côte d’Ivoire

0.08

6.1

7.5

7.0

7.5

7.0

0.4

0.5

2.5

2.5

Tanzania

0.13

6.5

5.2

5.5

5.3

5.0

3.5

3.7

5.5

6.0

Mozambique

0.03

3.7

3.3

2.5

5.0

4.0

4.0

3.0

4.0

4.0

Uganda

0.07

5.3

6.2

5.5

5.0

4.5

2.6

3.0

5.5

6.5

Rwanda

0.02

7.2

8.6

10.0

9.0

8.0

1.4

2.0

3.5

3.5

Botswana

0.03

3.7

4.5

4.0

4.0

3.5

3.2

3.5

4.0

4.0

Zambia

0.05

5.6

3.7

2.0

4.5

4.5

7.5

9.0

8.5

8.0

Mauritius

0.02

3.7

3.8

3.5

4.0

4.0

3.2

1.3

3.0

3.5

Namibia

0.02

3.4

-0.1

-1.0

2.0

2.0

4.3

3.8

4.5

6.0

Sub-Saharan Africa

3.1

4.2

2.7

2.7

3.0

3.2

8.8

8.2

8.2

8.2

Sources: Refinitiv, Capital Economics. 1) % of GDP, 2017, PPP terms (IMF estimates).

Table 2: Central Bank Policy Rates

Policy Rate

Latest

(8th Nov.)

Last Change

Next Change

Forecasts

End

2019

End

2020

End
2021

Nigeria

MPR

13.50

Down 50bp (Mar ’19)

Down 50bp (Nov. ’19)

13.00

13.00

12.00

South Africa

Repo Rate

6.50

Down 25bp (Jul ’19)

None on horizon

6.50

6.50

6.50

Angola

BNA Rate

15.50

Down 25bp (May ’19)

Up 100bp (Q1 ’20)

15.50

20.00

17.00

Kenya

Central Bank Rate

9.00

Down 50bp (Jul ’18)

Down 50bp (Q2 ’20)

9.00

8.50

8.50

Ghana

Policy Rate

16.00

Down 100bp (Jan ‘19)

Down 50bp (Nov. ’19)

15.50

15.00

14.50

Uganda

Central Bank Rate

9.00

Down 100bp (Oct ’19)

Up 100bp (Q3 ’20)

9.00

12.00

14.00

Sources: National Sources, Capital Economics

Table 3: Key Market Forecasts

Forecasts

Forecasts

Currency

Latest
(8th Nov.)

End

2019

End

2020

End

2021

Stock Market

Latest

(8th Nov.)

End

2019

End

2020

End
2021

Nigeria

NGN (Official)

306

307

307

307

NGSE

26,267

29,000

32,000

34,000

NGN (Nafex)

360

380

400

South Africa

ZAR

15.1

16.00

16.25

16.50

JALSH

56,473

51,675

56,850

62,525

Angola

AOA

492

475

475

450

n/a

Kenya

KES

103

105

110

115

NSE 20

2,455

2,800

3,000

3,000

Ghana

GHS

5.45

5.50

5.60

5.60

GSECI

2,186

2,400

2,500

2,700

Uganda

UGX

3705

3,800

4,300

4,500

UGSE

1,688

1,850

1,900

2,100

Sources: Bloomberg, Capital Economics


John Ashbourne, Senior Emerging Markets Economist, +44 20 7808 4080, john.ashbourne@capitaleconomics.com