Africa’s Macroeconomic Performance and Outlook

2024-02-22 10:12:21

In many African countries, inflation remained at alarming levels, with 19 countries posting double-digit rates at the end of 2022, a number that remained unchanged in 2023. Key economies, such as Egypt, Nigeria and Ethiopia saw their inflation exceed 20% in 2023, with rates of up to 29.4%.

The latest macroeconomic report from the African Development Bank (AfDB), titled “Africa Macroeconomic Performance and Outlook,” provides a comprehensive overview of the continent’s economic trends. This report highlights the developments, implications and prospects that marked the year 2023.

High inflation: a challenge persistent

One of the key macroeconomic challenges identified in the report is the persistence of high inflation which continues to hamper the performance of African economies. Indeed, since the start of the Covid-19 pandemic, Africa has recorded a significant increase in inflation, fueled by both internal and external factors. In 2023, average inflation in Africa was estimated at 17.8%, a notable increase compared to the pre-pandemic period (2015-2019) when it was 10.1%.

Among the countries most affected by inflation, we find Egypt, Nigeria and Ethiopia, where rates have exceeded the 20% mark. In Ethiopia, for example, inflation reached 29.4% in 2023, underscoring the scale of the challenge facing some of the continent’s largest economies.

Regional disparities in inflation are also highlighted in the report. East Africa recorded the highest inflation rate, at 30.6%, largely due to the economic challenges faced by Sudan, where inflation peaked at 245%. In contrast, Southern Africa saw inflation decline from 10.7% in 2022 to 8.5% in 2023, thanks to effective policies implemented in countries like Angola and South Africa.

The document adds that inflation persists at high levels, but is expected to begin a decline thanks to tighter monetary policy and the anticipated decline in commodity prices. To counter this persistent inflation, several African countries have adopted measures similar to those of advanced economies by tightening their monetary policy. In 2022, some central banks quickly raised their base interest rates, ranging from 400 basis points in Mozambique and Nigeria to 750 basis points in Ghana. These last two countries, which also have among the highest inflation rates on the continent, have seen these inflationary pressures remain significant despite these adjustments.

Furthermore, countries without an explicit inflation targeting framework continued to experience elevated inflationary pressures in 2023, compared to those with such a regime. However, these pressures are likely to converge in the short to medium term, as inflation is expected to decline significantly between 2023 and 2025 in some countries without inflation targets, mainly due to an easing of external inflationary factors. For example, inflation is expected to fall by 158.8 percentage points in Sudan, by 27.2 points in Sierra Leone, by 17.4 points in Zimbabwe and by 14 points in Ethiopia.

The tightening of monetary policies in Africa should gradually help to contain inflation thanks to the increase in interest rates, which will favor the appreciation of national currencies, as well as the continued decline in international prices of raw materials, subject to the easing of geopolitical tensions and associated risks. In addition, budgetary consolidation efforts will play a complementary role in this dynamic. Variations in the pace of disinflation across countries reflect different exposures to commodity and currency price fluctuations, as well as varying capacities of domestic output to respond to higher prices.

Some African central banks have taken a more cautious approach, viewing the current source of inflationary pressure as being due to disruptions in global supply chains rather than price increases driven by domestic demand. Thus, the magnitude and frequency of policy rate adjustments have varied considerably from one country to another. Despite significant rate hikes in Ghana, Mozambique and Nigeria, inflation expectations remained deeply entrenched and real rates remained negative in all countries, calling into question the effectiveness of traditional monetary policy tools.

In some countries, raising policy rates has not been enough to alleviate inflationary pressures, highlighting the need for more innovative instruments to address the supply-side factors behind the current inflationary surge. A further rise in interest rates might lead to disproportionate credit costs and weigh on growth. Some countries, where inflation was already high, have avoided tightening monetary policy, partly due to already high interest rates, meaning further hikes might dampen their economic recovery.

African currencies continue to weaken

Alongside these challenges, the continued depreciation of national currencies is putting additional pressure on African economies. This devaluation makes it more difficult to combat imported inflation, as it increases the cost of imports and can potentially worsen inflationary pressures already present.

Thus, although monetary policy tightening measures have been implemented in several countries, they have not yet been effective.produces the expected results in terms of controlling inflation and stabilizing national economies. This situation raises questions regarding the need for more nuanced approaches and complementary economic policies to address the current challenges facing Africa.

On another level, the report also highlights the challenges linked to budget deficits in Africa. Although some progress has been made in reducing these deficits, notably in Ghana, Zambia and Ethiopia, many countries continue to face significant budgetary pressures. The mobilization of national resources therefore remains a crucial issue for strengthening economic stability and financing sustainable development.

Perspectives futures

Despite current challenges, the report offers encouraging prospects for improvement in the medium term for African economies. If monetary policies continue to tighten, combined with a possible decline in commodity prices, a reduction in inflation is possible. This outlook reflects the efforts undertaken by the authorities to stabilize the economies and contain the inflationary pressures weighing on the region.

However, it is important to recognize that the situation remains fragile and that African economies remain vulnerable to global economic shocks. Fluctuations in commodity prices, international financial crises and trade disruptions continue to pose major risks to the continent’s economic stability.

In this context, the report highlights the pressing need for African governments to adopt sound and innovative economic policies.

These policies must be designed to address current challenges and create an enabling environment for sustainable and inclusive growth on the continent. This involves not only structural reforms aimed at strengthening economic resilience, but also innovative initiatives to stimulate investment, foster entrepreneurship and promote the development of key sectors of the economy.

Implementing such policies will require strong commitment from governments, strong partnerships with the private sector and civil society, as well as regional and inter-governmental cooperation.increased nationality.

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