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Renaissance Capital revises SSA growth forecast for 2020 to 1.3%
Renaissance Capital has revised its growth forecast for Sub-Saharan Africa to 1.3 per cent from its previous estimates of 3.5 per cent. Rencap also notes that oil exporters in Sub-Sharan Africa will be hit hard by the drop in oil prices and they expect Nigeria to fall back into a recession this year. Yvonne Mhango, Sub-Saharan African Economist at Renaissance Capital joins CNBC Africa for more.
Wed, 01 Apr 2020 12:18:36 GMT
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AI Generated Summary
- Sub-Saharan Africa's growth forecast slashed to 1.3% from 3.5%, impacting top economies like Angola and Nigeria
- Divergent impacts on oil exporters and petrol importers, with Kenya facing steep declines in horticulture and tourism sectors
- Central banks adopting varied responses to economic challenges, with Nigeria bracing for recession, currency depreciation, and shrinking reserves
Renaissance Capital has revised its growth forecast for Sub-Saharan Africa to 1.3% from its previous estimates of 3.5%. The emerging challenges in the region have forced Rencap to take a grim view of the economic landscape of Sub-Saharan Africa. Yvonne Mhango, Sub-Saharan African Economist at Renaissance Capital, highlighted the dual crises of the health emergency brought on by COVID-19 and the economic downturn triggered by the plummeting oil prices. The continent faces a multifaceted challenge, where the collapse in oil prices is set to severely impact oil exporters like Nigeria, while the outbreak of the coronavirus is causing a demand shock that is reverberating across all economies in the region. Mhango emphasized that the convergence of these crises will have a dire impact on the economy, particularly affecting services and health care sectors.
The rationale behind the significant revision in growth forecast stems from the expected turbulence in the top five biggest economies of the region, with oil exporters such as Angola and Nigeria bearing the brunt. Angola is projected to witness a fifth straight year of contraction, while Nigeria's slow recovery trajectory is set to be reversed with a forecast of negative growth exceeding 4% for this year. Other economies like Ghana and Kenya are also expected to face recessionary pressures, further dampening the growth prospects for the region. The economic strain resulting from the oil price crash and the implications of the coronavirus pandemic have collectively driven Rencap to adopt a cautious outlook on the economic future of Sub-Saharan Africa.
In analyzing the impact of the crises, the differentiation between oil exporters and importers of petrol becomes evident. While oil exporters face the direct hit of plummeting prices, countries like Kenya, traditionally an importer, are grappling with the adverse repercussions of reduced demand and disrupted exports. The horticulture industry in Kenya, a key export sector, is witnessing a significant decline in demand due to travel restrictions and market disruptions, leading to farmers discarding produce. Similarly, the tourism sector in Kenya is reeling from the blow of travel bans and reduced tourist inflows, signaling trouble for the country's broader economic landscape.
Central banks across the region have adopted varied responses to the unfolding economic challenges triggered by COVID-19 and the oil price crash. Countries like Ghana and Kenya have implemented aggressive rate cuts to stimulate their economies, while others like Nigeria have maintained rates at current levels. The local responses of different central banks aim to address the unique challenges faced by each economy, with measures ranging from policy rate adjustments to currency devaluations. Despite these efforts, Renaissance Capital does not foresee any further rate changes in 2020, underscoring the enduring uncertainty that looms over the economic outlook of Sub-Saharan Africa.
Delving into the specific case of Nigeria, Mhango predicts a tumultuous path ahead, with expectations of the country sliding back into recession this year. The revised forecast paints a bleak picture, with negative growth of over 4% anticipated, alongside a depreciating currency projected to reach 420 Naira per dollar and inflation hovering around 14%. The fiscal measures taken by Nigerian authorities, such as adjusting budget assumptions and reducing deficits, are deemed commendable amid the anticipated revenue shortfall due to the oil price collapse. However, concerns linger over the financing gap and the potential need for alternative funding sources to navigate the economic turmoil.
The downward trajectory extends to Nigeria's foreign exchange reserves, with projections indicating a steady decline of $1 billion monthly over the next six months, potentially culminating in reserves falling below $30 billion by September. The impact of the crisis is expected to widen the current account deficit, contributing to the strain on the country's financial reserves. Despite some mitigating factors like reduced import demand due to travel restrictions, the overall economic landscape in Nigeria remains challenging, with declining foreign capital flows exacerbating the FX reserve depletion. The cascading effects of the crisis are set to test the resilience of Nigeria's economy in the coming months.
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