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Output growth remains strong despite global slowdown
Country PMIs reveal shifting developments
Africa trade agreement bolsters hopeful outlook
The first half of 2019 looks to have been a disappointing one in
terms of global growth. Deteriorating sentiment among industrial
sectors, as well as subdued service sector activity, means that
global economic growth has slowed to a three-year low. However,
encouraging PMI data for Sub-Saharan Africa exemplifies the region
as one that may buck this slowdown with both output and demand
continuing on solid paths in recent months. Moreover, a new
continental trade agreement gives hope for even stronger business
activity growth in the future.
Growth looks set to beat global trend
PMI survey data compiled by IHS Markit show that Sub-Saharan
business activity growth was consistently robust in the first half
of 2019. Responses from businesses in seven countries in the region
indicated that activity has risen at a solid pace, albeit slower
than on average last year.
More importantly, the strength of the region compares with a
disappointing set of survey results for developed markets, which
recorded the worst quarter for output growth since 2013 in the
three months to June. Similarly, emerging markets in June saw the
weakest upturn in activity for three years. Altogether this
suggests that official data for the first half of the year will be
underwhelming.
One possible reason for the divergence is that African countries
have been less targeted by import tariffs than key economic regions
such as the US, EU and China, which have dampened global demand in
2019 so far. The African nations are also less reliant on
international trade and focused more on domestic consumption, which
has generally been solid for the region.
Looking at individual country PMIs, 2019 survey data shows
growth accelerating at two of the monitored countries: Mozambique
and Uganda. Nigeria has meanwhile maintained a solid growth trend,
albeit one that has been softer than recorded on average in 2018.
Conversely, South Africa, the most industrialised nation of the
group, have seen output decline slightly due to frequent power cuts
(read more
here), while Zambia has recorded a steeper downturn.
Uganda leads region with economic upturn
The second quarter of 2019 saw economic growth in Uganda
accelerate. Moreover, June itself saw the Stanbic Bank PMI reach
its highest level since the survey began in June 2016. The data
suggest that the rate of expansion in GDP will pick up again in Q2
following a softening at the start of the year. Stanbic Bank
economist, Jibran Qureishi added to the optimistic picture, saying,
"The expansionary fiscal policy outlined in the FY2019/20 budget
should continue to support activity, especially if the absorption
of the development budget improves".
Kenyan firms restrained by poor cash flow
Despite an overall positive picture for the region, there are
some headwinds lingering. After a strong performance in 2018 for
the Kenyan private sector economy, business conditions have been
more subdued in the year-to-date in 2019. Often, firms in the
survey have seen activity limited by cash flow problems, partly due
to a credit freeze on small- and medium-sized enterprises. As a
result, April PMI data even signalled a marginal contraction in
output, while new order growth also stalled.
However, June's survey saw mentions of cash flow issues decrease
slightly in Kenya, while accelerating sales growth and improved
agricultural conditions led to a sharp uplift in output. In
addition, businesses raised their optimism for future output to a
survey high, with panellists mentioning expansion plans and the
latest government budget speech as underpinning hopes. If such
optimism and current demand levels can be sustained, the second
half of the year could see output growth return to 2018
standards.
Zambia slowdown deepens
Cash flow issues have also been prevalent in Zambia, according
to survey respondents, with a lack of money at companies and their
customers reportedly hampering demand. At the same time, currency
weakness has acted to push up inflationary pressures. The output
prices element of the Stanbic Bank PMI for Zambia survey hit a
43-month high in June, with official consumer prices data likewise
pointing to accelerating inflation.
The headline Zambian PMI meanwhile hit a seven-month low in May,
and although picking up in June, continued to signal challenging
business conditions.
Trade agreement underpins hopeful outlook
On Sunday 7th July, Nigeria became the latest signatory to the
Africa Continental Free Trade Area (AfCTA), in effect giving the
green light as the region's largest economy to the initiative to
open Africa's borders. The agreement, which is due to come into
action next year, offers a lot of potential for businesses. Only
17% of Africa's trade is intraregional, compared to 59% for Asia
and 69% for Europe. This could be as much due to poor
infrastructure as it is to better trade prospects with the likes of
the US and China, although a clear date for the removal of barriers
would likely lead to further investment to address these
limitations.
More importantly, this represents a clear difference in
direction for Africa. As the dominant economies of the world target
protectionist measures, African nations are building links and
increasing trade with each other, a strategy that can largely
benefit resource-rich Sub-Saharan nations. Naturally, businesses
are becoming progressively optimistic, with the Future Activity
Index for Sub-Saharan Africa reaching a near three-year high in
June.
While some countries in Sub-Saharan Africa have economic issues,
they are generally local and contained, whereas the apparent global
slowdown seems to have been bypassed so far. If this continues, and
preparations for AfCTA remain on-track, the area could enjoy a
solid rate of growth in 2019 and beyond.
July PMI data for Sub-Saharan African countries will be released
on Monday 5th August.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
