Africa’s Macroeconomic Performance and Outlook – January 2023

The African Development Bank, on the 19th of January, 2023, launched the 2023 Africa’s Macroeconomic Performance and Outlook.

The publication offers policymakers, global investors, researchers, and other development partners an up-to-date evidence-based assessment of the continent’s recent macroeconomic performance and short-to-medium-term outlook amid dynamic global economic developments. It also features forecasts and analysis from the surveillance of regional and global macroeconomic developments. 

The report advocates for bold policy actions at the national, regional, and global levels to help African economies mitigate the compounding risks.

This article by Brickstone, reviews the African Development Bank Group’s publication on Africa’s Macroeconomic Performance and Outlook, highlighting key insights and takeaways.

Africa’s Macroeconomic Performance and Outlook

According to the AfDB, Africa is set to outperform the rest of the world in economic growth over the next two years, with real gross domestic product (GDP) averaging around 4% in 2023 and 2024. This is higher than projected global averages of 2.7% and 3.2%. 

With a comprehensive regional growth analysis, the report shows that all the continent’s five regions remain resilient with a steady outlook for the medium-term, despite facing significant headwinds due to global socio-economic shocks.

Despite the confluence of multiple shocks, growth across all five African regions was positive in 2022—and the outlook for 2023–24 is projected to be stable.

It also identified potential risks and called for robust monetary and fiscal measures, backed by structural policies, to address them.

The following are key facts from the Africa’s Macroeconomic Performance and Outlook:

Following the impressive recovery in 2021 after the shock of the COVID-19 pandemic, African economies slowed amid significant headwinds in 2022, but they remain resilient with a stable outlook. The slowdown in economic growth has been due to a confluence of factors, including the growing  impacts  of  climate  change,  persistent  COVID-19 risks in Africa and globally, and the spill-over effects of rising geopolitical tensions such as evolving flashpoints of conflict and insecurity on the  continent  and  Russia’s  invasion  of  Ukraine.

As in many emerging market economies, tightening financial conditions and the appreciating US dollar have had dire consequences for most African economies. They have increased the cost of servicing existing debt and heightened the risk of debt distress. They have also restricted access to international capital markets for new financing to meet fiscal needs. And they have greatly amplified instability in foreign exchange markets and pushed price  stability  beyond  the  grasp  of  most  central  banks.

The  estimated  average  growth  of  real  gross  domestic  product  (GDP)  slowed  to  3.8  per-cent  in  2022  from  4.8  percent  in  2021—  and  is  projected  to  stabilize  at  4  percent  over  2023–24. Theslowdown reflects the confluence of  the  domestic  and  external  shocks  just  high-lighted. In  addition,  the  downward  revision  of  Libya’s real GDP growth for 2021 from 177.3 per-cent to 28.3 percent due to updated oil produc-tion data dwarfed the marginal declines in other economies.

Despite  the  confluence  of  multiple  shocks,  growth across all five African regions was positive  in  2022—  and  the  outlook  for  2023–24  is  projected to be stable. For example in Central Africa, bolstered  by  favorable  commodity  prices,  growth  is  estimated  to  have  been the continent’s fastest, at 4.7 percent, up from 3.6 percent in 2021. In East Africa, growth is estimated to have moder-ated to 4.2 percent in 2022 from 5.1 percent in 2021 but is projected to recover to the prepan-demic average above 5.0 percent in 2023 and 2024.

Slowing global demand, tighter financial con-ditions, and disrupted supply chains had differentiated impacts on African economies. The impacts  of  shocks  on  resource-intensive  economies and major commodity exporters varied in 2022 depending on the type of exported commodities. Overall, the outlook is positive, with prices for key  exports  remaining  high  and  competition  for  Africa’s  natural  resources  expected  to  grow as  advanced economies look for alternative food and energy markets and for mineral resources to support their green transitions.

Tighter  global  financial  conditions  put  pres-sure  on  African  domestic  currencies,  raising  the risk from already high inflation, but infla-tion is projected to ease in 2023 as countries sustain  restrictive  monetary  and  structural policies. The  tighter  global  financial  conditions  destabilized the foreign exchange markets of most African countries, but the dynamics were mixed. Most  African  currencies,  especially  in  commod-ity-exporting  countries,  lost  substantial  value  against  the  US  dollar  in  2022  due  to  monetary  policy  tightening  in  the  United  States.

Average consumer price inflation is estimated to have increased by 0.9 percentage point, to 13.8 percent in 2022 from 12.9 percent in 2021, the highest in more than a decade. It reached double digits in 19 African countries, with the high-est rates in east Africa (25.3 percent), west Africa (16.8 percent), and Southern Africa (13.2 percent).

Africa’s  current  account  deficit  narrowed  slightly,  to  1.5  percent  of  GDP  in  2022  from  1.7 percent in 2021, due to improved trade bal-ances buoyed by higher commodity exports. The deficit is projected to stabilize at 1.6 percent of  GDP  in  2023–24,  supported  by  the  knock-on  effects  of  commodity  prices  on  net  commod-ity  importers  and  exporters.  Similarly,  the  aver-age  fiscal  deficit  is  estimated  to  have  narrowed  to  4.4  percent  of  GDP  in  2022  from  5.2  percent  in 2021, thanks to fiscal consolidation measures by  several  countries.

The  welcome  recovery  and  the  economic  resilience of African countries in the short to medium  term  come  with  cautious  optimism  given the considerable global uncertainty. The risks of debt default could increase in some Afri-can countries— given the already high accumula-tion and changed structure of public debt in the past  decade,  the  additional  financial  pressures  created  by  the  appreciating  US  dollar,  and  the  tightening monetary conditions globally.

The main downside risks to the outlook are: high interest rates, which could exacerbate the cost  of  debt  service  and  slip  some  countries  into a high risk of debt distress; losses and damages due to extreme weather events; dependence on commodity exports with lim-ited value addition; regional  conflicts  in  key  hotspots  such  as  Burkina Faso, Democratic republic of Congo, ethiopia, Mali, and Mozambique; political  risks  due  to  upcoming  national  elec-tions in some countries. Also, an estimated 15 million additional people were driven  into  extreme  poverty  in  Africa  due  to  higher  global  energy  and  food  prices  in  2022,  exacerbating  the  increase  in  extreme  poverty  induced  by  the  COVID-19  pandemic.

Download the full publication here.