Lemaitre
MarketsNewsSouthern Africa

African commodity exporters in a better position

In 2023, the energy crisis and rising interest rates will drag global GDP growth down to just +1.5%, as slow as it was in 2008. It’s the latest forecasts provided by Allianz Trade, which operates through the Allianz Global Corporate & Specialty license in South Africa.

Since June, global macroeconomic conditions have considerably worsened. Deep and long-lasting ruptures in energy markets and the negative impact on business confidence will push the manufacturing sector in most countries into recession. At the same time, rapidly rising interest rates and falling real disposable incomes will induce a housing recession in the US.

After contracting by -0.6% in the second quarter of 2022, global growth will return to negative territory in Q4 (-0.1% q/q) and is not likely to recover before mid-2023. Overall, we have cut our 2023 forecast to +1.5% (-1.0pp compared to our Q2 forecasts).

Africa: Commodity exporters in a better position

Commodity exporting countries have a more positive outlook, helped by better terms of trade prospects.  GDP forecast for 2023 is as follows: Africa (2.7% from 3.2% in 2022), South Africa (1.5% from 1.8%), Nigeria (unchanged at 2.3%), Ghana (unchanged at 2.5%), and Kenya (4.4% from 4.9%). However, domestic issues are limiting. In South Africa, energy rationing, and logistical bottlenecks – aggravated by flood damage to the port of Durban in April hamper growth while in Nigeria, the oil sector continues to struggle.

Eurozone and US forecast

Eurozone growth is likely to plunge to -0.8% in 2023 due to soaring energy prices and negative confidence effects. Consumer sentiment has already plunged to record lows and business confidence continues to deteriorate rapidly, which will hold back consumption and investment. Increased fiscal support to the tune of 2.5% of GDP on average and limited monetary easing after mid-2023 will help make the recession shorter and shallower, and limit the risks of social unrest.

The US will register a -0.7% fall in GDP, mainly due to rapidly tightening monetary and financial conditions, which will significantly cool the housing market, coupled with a negative external environment and low fiscal support after the mid-term elections.

China’s economic recovery will be difficult

After a very low level of growth in 2022, China’s economic recovery will be difficult. We have significantly cut our growth forecasts to +2.9% in 2022 (from +4.1%) and +4.5% in 2023 (from +5.2%) based on four factors: the short-lived post-omicron reopening boost, the likely continuation of the zero-Covid policy until Q2 2023, which is weighing on business and household confidence, risks in the property sector and extreme weather currently pressuring energy supply. In addition, lower external demand will limit export growth, which had been a tailwind throughout 2020-2021.

Global inflation outlook

Inflation will remain high until Q1 2023 after energy prices have peaked, with food and services adding upside pressure. We expect global inflation to average 5.3% in 2023 (after close to 8% in 2022). Eurozone inflation should peak at 10% in Q4 2022 and then average 5.6% in 2023. In the US, inflation is likely to have peaked already but should remain above 4% until Q1 2023, falling below 2% only after Q3 2023 (averaging 2.9% in 2023).

Inflation outlook in Africa

Inflation is set to continue increasing driven by costlier food and fuel prices with Africa forecast to finish 2022 averaging 14.7% and then 9.6% in 2023, Nigeria (18% and 15%), South Africa (6.8% and 5%), Ghana (31.3% and 20.3%) and Kenya (6.5% and 5.5%). Heightened food security risks in North Africa and many parts of sub-Saharan Africa where the role of agriculture and the tendency to rely on imported food products makes the countries particularly vulnerable to the agricultural shock caused by the geopolitical conflict.

Global trade

Global trade growth in volume will also remain low at +1.2% in 2023 as advanced economies face a domestic demand-led recession. The return of credit risk is to be expected as this recession will be triaging the good, the bad and the ugly of corporate vulnerabilities. The rebound in business insolvencies gained momentum during 2022 (+18% q/q in Q2 2022, from +5% in Q1). The largest acceleration happened in Western Europe (+26% y/y YTD). Though we are still witnessing historically low numbers of bankruptcies in the US (-19% YTD as of Q2), China (-14% as of August) and Germany (-4% as of June), Spain, the UK and Switzerland already show pre-pandemic insolvency numbers. The trifecta of lower demand, prolonged production constraints (input prices, labor shortages and supply-chain matters) and increasing financing issues (access and costs) is mechanically pushing up expectations in business insolvencies, notably for European countries and sectors most exposed to energy issues. The -0.8% decline in Eurozone GDP has the potential to accelerate the rise in insolvencies by +25pp in 2023 (to more than +40%), with Germany up +16%, France up +29%, Italy up 31% and Spain up 25%. This increases the probability of seeing the extension of and new (targeted) state aid measures.

Want more stuff like this?

Join over 48, 000 subscribers and receive our weekly newsletter!

Staff Writer

The African Agribusiness is a source of insightful information on agriculture, markets and developments in Africa.