Saturday, August 30, 2014

Nigeria, Kenya, Zambia economic growth to accelerate

Johannesburg - Economic growth in Nigeria, Kenya and Zambia will accelerate over the next two years while Ghana's economy is likely to struggle in the short term as its government is forced to rein in spending, a Reuters poll showed on Thursday.

Nigeria and other fast-growing African economies are still set to outperform global economic growth, as well as other emerging markets like Brazil, and even South Africa.

“For Nigeria, the numbers out of the oil sector show oil production increasing in the first half of this year which is going to provide a boost to overall growth,” said Shilan Shah, at Capital Economics.

Nigeria's economy is forecast to grow by 6.5 percent both this year and next, faster than its 5.5 percent expansion in 2013 after a rebasing of its GDP.

The forecast for 2015 is slightly ahead of the government's own forecast for 6.2 percent.

Nigeria should benefit from rising oil prices, which according to a recent Reuters poll are set to gradually increase, in part because of geopolitical tension in other oil-producing regions, including Russia and the Middle East.

“The government also loosened fiscal policy ahead of next year's election which will provide support to growth this year into next year as well,” Shah said.

Nigeria's recent rebasing of its gross domestic product made it Africa's biggest economy, overtaking South Africa, which is expected to grow at a paltry 1.7 percent this year.

East Africa's biggest economy - Kenya - has been hit by a drop in tourism following attacks blamed on Islamists from neighbouring Somalia, but the poll forecasts growth will still accelerate from last year to 5.0 percent this year.

Last year the economy grew 4.1 percent.

Kenya also has strong trade links with the euro zone, making it vulnerable as the euro zone economy is stagnating.

Shah, however, is a bit more optimistic than many others about the euro zone.

“Although the euro zone is not doing so well, it is undergoing a gradual recovery, it has come out of years of recession which should help export prospects,” said Shah.

Most of the African economies covered in the poll are still generating relatively high rates of inflation - over 8 percent in Nigeria and expected to rise further.

Ghana, which is struggling with fiscal problems and inflation of 15 percent, is set to see growth slow to 5.5 percent this year, from around 7 percent last year, according to the poll, which is well below the government's forecast of 7.1 percent growth.

The poll sees growth picking up only slightly next year to 5.7 percent.

Ghana's currency has been under pressure, losing over half of its value this year as the government struggles to tame large budget and current account deficits which have turned investor sentiment against the one-time frontier market darling.

“The fiscal issue is a recurrent problem for Ghana. The IMF said they need to lower fiscal spending, it will have a short-term (negative) impact, but in the long term it will benefit Ghana,” said Melissa Verreynne at NKC Independent Economists.

Zambia's currency has also taken a beating due to large budget deficits.

But Zambia is expected to grow faster in the next two years as it hangs on to some of China's waning appetite for commodities.

The poll forecasts growth of 6.6 percent this year and 6.9 percent in 2015, up from 6 percent last year. - Reuters

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