African Economic Outlook 2015 ECA s Contribution to the World Economic and Situation Prospects 2015 (WESP 2015) Link Meeting: 22-24 October 2014 Adam Elhiraika Macroeconomic Policy Division United Nations Economic Commission for Africa 1
Key Messages Africa s growth prospect remains positive despite strong headwinds. Growth in private consumption and investment will be the key drivers of growth in 2015. Ghana (2010), Nigeria (2014), Kenya (2014) & Zambia (2014) rebased their GDP. Inflation will remain subdued, decelerating by 0.4 percentage points to 7.2 in 2015. Fiscal deficits are expected to moderate from 0.37 per cent of GDP in 2014 to 0.35 per cent of GDP in 2015. The current account (CA) balance is expected to decline but remain positive for oil exporting countries while the CA deficit would rise for oil importing countries. Private capital inflows are expected to remain strong and increase in 2015, thanks to improved business climate and profit prospects. Slowdown in oil and commodity prices, slow recovery in developed countries, tighter global monetary policies, Ebola outbreak, weather-related shocks, and political instability will remain threats to medium-term growth prospects. However, Africa s underlying fundamentals for long-term growth remain robust. 2
Real GDP Growth (%) Africa s growth remains strong relative to other regions 10.0 8.0 9.2 7.2 6.0 6.0 5.8 5.9 6.0 6.0 5.5 5.0 4.8 4.5 4.0 4.2 3.9 4.0 3.7 3.9 3.1 3.0 2.7 2.6 2.7 2.2 2.4 2.0 1.9 1.6 1.4 0.7 0.0 2010 2011 2012 2013 2014 2015 2016-0.9-2.0 Africa (excluding Libya) Latin America and the Caribbean South-Eastern Europe East and South Asia Data Source: UN-DESA, 2014 3
Private Consumption (PC) and gross capital formation (GFCF) are expected to be key drivers of growth Data Source: UN-DESA, 2014 4
Private Consumption (PC) and GFCF expected to be key drivers of growth Private Consumption Growth in PC is expected to accelerate by 0.5 percentage points to 3.8 per cent in 2015 due to increasing consumer confidence and the expanding middle class. Gross Fixed Capital Formation Growth in GFCF is expected to accelerate by 1 percentage point to 2.6 percent in 2015 due to improved business environment and reduction in the cost of doing business Government Consumption Government consumption (GC) will remain high on the continent due mainly to increased spending on infrastructure. However, GC growth is expected to decrease in 2015 at the backdrop of fiscal consolidation measures, mostly in Central, Southern and West Africa. Net Exports Net Exports (NX) are expected to deteriorate by 0.3 percentage points due to weakening commodity prices and high oil prices. 5
Private consumption continues to lead the components of growth by economic groupings Data Source: EIU, 2014 6
Private consumption also leads the growth components among sub-regions Data Source: EIU, 2014 7
Recent GDP rebasing and implications Four African countries have recently rebased their GDP Ghana in November 2010 GDP increased by 60 per cent after rebasing Zambia in February 2014 GDP increased by 24 per cent after rebasing Nigeria in April 2014 GDP increased by 89 per cent after rebasing and became the largest in Africa Kenya in September 2014 GDP increased by 25 per cent after rebasing Other implications of GDP rebasing: Improves the accuracy of GDP data by incorporating new sectors such as the informal sector; Updates information relating to changing patterns of sectoral contributions; in Nigeria agriculture contribution to GDP decreased from 33 to 22 per cent, while the contribution of services increased from 26 to 51 per cent, due to the incorporation of the entertainment sector; In Kenya manufacturing contribution to GDP increased from 9.5 to 11.3 per cent, and a separate ICTs sector was incorporated; Decreases the debt (and tax revenue) to GDP ratios, but not the debt-export ratio; And rebasing does not automatically translate into better living standards 8
Subdued inflation across economic groupings Data Source: UN-DESA, 2014 9
Also subdued inflation across economic sub-regions Data Source: UN-DESA, 2014 10
Moderating fiscal deficits among subregions in 2015 Data Source: EIU, 2014 11
Moderating fiscal deficits expected in 2015 among country groupings Data Source: EIU, 2014 12
Deteriorating current account balances in oilexporting countries Data Source: EIU, 2014 13
Continued rising private capital inflows and remittances expected in 2015 Data Sources: EIU, 2014; AfDB, 2014; UNECA, 2014 14
Prospects for Positive Outlook Africa s growth will continue to be underpinned by robust underlying fundamentals, such as: Improved governance and macroeconomic management, Investment in infrastructure, human and physical capital deepening, Improving productivity and structural transformation/change, in some economies; Rapid urbanisation and reduced fertility, A rising middle class and aggregate demand, Diversified trade and investment partnerships, increased regional integration, Rapid improvement in the information and communication technologies (ICTs), Reduction in armed conflicts, and Deepening regional integration 15
Downside risks and uncertainties Slowdown in oil and commodity prices, Slow recovery in developed economies, Tightening monetary policies across the globe, Ebola outbreak in West Africa, Political instability and terrorism in Nigeria, Kenya, Lesotho, Somalia, Congo DRC, Central African Republic, Mali, Tunisia, Libya, and Egypt, Civil and labour unrests in countries such as South Africa, Weather-related shocks. 16
Conclusions and policy implications Maintain improved regional business environment, governance, and economic management. Ease infrastructural constraints, and increase trade and investment ties with emerging economies; Increase investment in human capital; Devise innovative ways of domestic financing to compensate for moderating medium-term capital inflows due to tighter monetary conditions in developed economies. Accelerate regional integration and implementation of Continental Free Trade Area (CFTA) 17