By Favour Nnabugwu
Allianz Trade which operates through the Allianz Global Corporate & Specialty license in South Africa, said in its report that commodity exporting countries, Nigeria and three other countries would have positive outlook in 2023
Though report said the energy crisis and rising interest rates will drag global GDP growth down to just +1.5 percent as slow as it was in 2008.
The other three include South Africa, Kenya and Ghana
In Africa 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 percent from 3.2 percent in 2022), South Africa (1.5 percent from 1.8 percent), Nigeria (unchanged at 2.3 percent), Ghana (unchanged at 2.5 percent), and Kenya (4.4 percent from 4.9 percent).
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.
Inflation rate in Africa is set to continue increasing driven by costlier food and fuel prices with Africa forecast to finish 2022 averaging 14.7 percent and then 9.6 percent in 2023, Nigeria (18 percent and 15 percent), South Africa (6.8 percent and 5 percent), Ghana (31.3 percent and 20.3 percent) and Kenya (6.5 percent and 5.5 percent).
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.
Allianz Trade said Nigeria’s economy which expanded by a better-than-expected 3.5 percent y/y in Q2, up from 3.1 percent y/y in Q1, while the pick-up in headline growth was largely due to the contraction in the oil sector easing, while growth in the non-oil economy held up well. In seasonally-adjusted terms, GDP rose by around 0.9 percent q/q.
More timely indicators suggest that activity picked up further at the start of Q3. The MI rose from 50.9 in June to 53.2 in July. And private sector credit growth reached 21.3 percent y/y in July. But production in the key oil sector remained very low, essentially unchanged from June at 1.18mn bpd in July.
Meanwhile, the currency weakened against the US dollar, both on the Nafex exchange rate and the black market. Inflation jumped from 18.6 percent y/y in June to 19.6 percent y/y in July, the highest since September 2005.
The main driver behind the increase in the headline rate was another sharp rise in food inflation, although price pressures rose in other categories too. Elevated inflation is likely to push policymakers to continue raising interest rates.
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 percent in the second quarter of 2022, global growth will return to negative territory in Q4 (-0.1 percent q/q) and is not likely to recover before mid-2023. Overall, we have cut our 2023 forecast to +1.5 percent (-1.0pp compared to our Q2 forecasts).
Global trade growth in volume will also remain low at +1.2 percent 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 percent q/q in Q2 2022, from +5 percent in Q1). The largest acceleration happened in Western Europe (+26 percent y/y YTD).
Though we are still witnessing historically low numbers of bankruptcies in the US (-19 percent YTD as of Q2), China (-14 percent as of August) and Germany (-4 percent 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 percent decline in Eurozone GDP has the potential to accelerate the rise in insolvencies by +25pp in 2023 (to more than +40 percent), with Germany up +16 percent, France up +29 percent, Italy up 31 percent and Spain up 25 percent. This increases the probability of seeing the extension of and new (targeted) state aid measures.
On the global level, nflation 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 percent in 2023 (after close to 8 percent in 2022).
Eurozone inflation should peak at 10 percent in Q4 2022 and then average 5.6 percent in 2023. In the US, inflation is likely to have peaked already but should remain above 4 percent until Q1 2023, falling below 2 percent only after Q3 2023 (averaging 2.9 percent in 2023).
