BMI, a subsidiary of Fitch Solutions, expects growth in Sub-Saharan Africa to accelerate in 2024 as a result of stronger economic activity in SA and Nigeria, but warns SA’s growth will only improve as load-shedding improves.
The US-based institution said the improvement in SA growth prospects will become more apparent in the second half of 2024 as the SA Reserve Bank begins its rate-cutting cycle.
“Monetary [policy] easing, moderating inflation and lower levels of load-shedding will support consumer and business activity,” BMI-Fitch said. “That said, structural headwinds to the mining and manufacturing sectors will keep economic activity muted.”
The report comes after data last week suggesting further weakening in economic activity. The manufacturing purchasing managers’ index (PMI) slipped from an expansionary level of 51.7 in February to a contractionary value of 49.2 in March.
Similarly, the whole economy PMI fell from 50.8 in February to 48.4. At the same time, passenger car sales declined 11.4% between February and March.
Old Mutual Group chief economist Johann Els said the economy is weak but these declines seem excessive.
“Firstly, the PMI data have increasingly been very volatile and I therefore suggest that not too much value could be placed on one month’s data. The manufacturing PMI has actually improved somewhat — on a three-month moving average basis — since November last year,” Els said.
“In addition, the ‘expected conditions’ component — looking six months ahead — continues to suggest much better conditions later this year. Weak car sales could perhaps be partly explained by fewer trading days in March as public holidays could have impacted the sales data.”
BMI-Fitch forecasts growth to pick up in SA, accelerating to 0.7% in 2023. Growth was revised down to 1.4% from 1.7% in 2024 to reflect the effects of sticky inflation. GDP growth in Sub-Saharan Africa is expected to accelerate from an estimated 3.2% in 2023 to 3.8% in 2024.
It forecasts Nigeria’s economy will expand 2.9% in 2024, a modest improvement on the 2.7% recorded in 2023. It expects inflation to average 28.7% in 2024, as a result of the partial removal of the fuel subsidy and two large devaluations of the naira.
Ghana’s economy is expected to enter a recovery phase in 2024, driven by stronger private consumption. Inflation is expected to moderate as a result of statistical base effects and greater exchange rate stability, which will support purchasing power and boost household spending.
BMI-Fitch expects the Ghanaian government to increase expenditure ahead of the December 2024 general election. “That said, growing consumer imports will weigh on the contribution of net exports to overall growth, thus we do not anticipate a return to the pre-pandemic five-year average growth rate of 5.3% in 2024,” it said.
Gradual improvement
Els said that while the SA economy is undoubtedly weak, he forecasts a gradual improvement over the next few months and into the second half of the year and in 2025.
“The rand is still expected to rebound strongly later into 2024, likely only after the local elections — and be more stable over the medium term.
“I expect the status quo to remain after the elections — that is, the same government and the same economic policies; conditions should stabilise,” Els said.
“Also lower levels of load-shedding this year should gradually aid economic activity. I still expect better, albeit weak, growth in 2024 versus 2023.”
Both Els and BMI-Fitch noted challenges with the country’s production sectors, highlighting poor activity. The sectors have been struggling with currency fluctuations, high inflation, power blackouts and logistical problems in exporting minerals because of deteriorating road, rail and port infrastructure.
According to Stats SA, the country’s electricity generation and distribution sectors showed an improvement in February after a January dip. Average electricity output during the first two months of 2024 remained below levels seen in the last quarter of 2023 — indicating ongoing constraints on economic activity, particularly in energy-intensive sectors, during the first quarter of the year.
Electricity generation grew 4.2% year on year and 1.6% on a monthly basis. Distribution saw similar gains. This allowed for reduced load-shedding as the energy availability factor rose above 52%.
Eskom’s share of electricity production declined to 85.2%, down from 85.8% in January. Other generation, including renewables, accounted for 14.8% — the second time it reached this level, with the first occurrence in December 2022.
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