Over the next year, we expect the world to contend with slower economic growth. A recessionary-like environment can be expected across developed countries, with more divergence in economic activity for emerging markets. Implicitly, our base case is for softer and volatile commodity prices as economic growth slows. A global shift in monetary policy stance, to either pause or slowdown the pace of interest rate hikes in 2023, will largely remain a function of inflation which is broadly expected to ease — especially towards the later part of 2023. We believe that central banks are likely to shift their tone from arresting inflation to supporting growth.
Meanwhile, the Russia-Ukraine war remains the key geopolitical risk. We continue to observe the effects of the sanctions against Russia and their disruptive nature on oil prices and on broader supply chains. The current EU ban on Russia’s seaborne crude and the expected ban on imports of refined oil products from Russia in 1Q23 are some of the challenges that will add volatility in the energy market. China — Africa’s key trading partner — is expected to gradually recover next year given its commitment to relax the strict covid-19 policies. This move, if sustained, should lead to stronger growth in China’s economy relative to 2022, which could offer some upside risk to commodity prices. On the back of this, we caution that the effects of a global slowdown, combined with a higher interest rate environment will continue to weigh on financial markets.
For Africa, these broad themes are likely to have various effects on top economic indicators.
- Growth is expected to be divergent and heavily dependent on commodity price movements throughout the year. Investment in key sectors such as mining, agriculture, logistics and energy will continue, but within reason given the higher cost of funding and the lacklustre global backdrop.
- Inflation, while expected to ease across the continent, will remain structurally above its long-term average. Combined with high interest rates and further shocks that could emanate from the oil market, we are concerned about personal consumption expenditure as real incomes decline given the strain on consumers. We expect most countries to reach the peak of their hiking cycle by the first half of next year (barring further shocks to inflation). Central banks will continue to observe their respective inflation profiles while being more cautious on growth.
- Fiscal policy will remain constrained across most markets, partly due to elevated costs of funding. Nevertheless, we expect further reliance on multilateral and domestic funding to support the various country deficits. Similarly, the impact of debt sustainability will remain a theme as was seen during the pandemic. Focus in 2023 will be on debt restructuring in markets like Ghana and Zambia, as well as observing vulnerabilities in other markets.
- Currency volatility is still expected in 2023, with a general bias toward further depreciation for many currencies, in our view. We expect to see broad dollar strength, associated with a tepid global environment.
- Politically, attention will be cast on the Nigerian polls slated for February 2023 given the pressure on the incoming leaders to reform the economy across areas of unemployment, security risk and monetary policy.
- Last but not least, regionalisation has been a theme since the onset of the pandemic. Effects of this has meant that border issues and the continued usage of certain tariffs have persisted, implying that businesses have continued to use existing trading routes. Despite this, we believe the African Continental Free Trade Area (AfCTA) will continue to gain momentum over the year as more countries look to relax trade barriers across their jurisdictions.
Summary
Botswana
RMB's Africa Economist Daniel Kavishe and FNB Botswana’s Economist Gomolemo Basele discuss Botswana’s economic outlook for the year, highlighting key areas such as diamond production, inflation, and high interest rates.
Zambia
RMB’s Africa Economist, Daniel Kavishe, interviewed FNB Zambia’s Economist, Chileshe Moono. They discussed 2023’s sectoral focus, investment from the government and private sector, and factors influencing loadshedding.