The slowdown in economic growth in Nigeria and Egypt and a deep economic contraction in South Africa alone will shave off 1 ppt from Africa’s economic growth this year. Together these three economies account for just under 60% of total African economic output, and all three will see a significant weakening in economic growth this year. This slowdown in economic activity will permeate through the continent as these countries are salient drivers behind economic growth in their respective regions.
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The dual Covid-19 and commodity price slump shocks will permeate across Africa. Our vulnerability index suggests that the direct trade hit associated with a Chinese demand shock may be most acutely felt by Angola, Gabon, Ethiopia, Rwanda, Kenya, and Cameroon. Notwithstanding a sell-off in African sovereign credit, we do not consider the severity of the downturn as completely priced in as yet.
We expect Moody’s will cut South Africa’s sovereign credit rating to ‘junk’ before the end of March. While the downgrade has largely been priced in, the exclusion from the World Government Bond Index holds considerable uncertainty. A temporary overreaction by the rand and a mild increase in government borrowing costs are likely, but we do not expect a capital exodus.
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