IMF Reinforces Optimism on Global Growth Outlook

The International Monetary Fund (IMF) released its October 2017 World Economic Outlook this week as part of events marking the Annual Meetings of the World Bank Group (WBG) and the IMF holding between 10-15 October 2017. Titled “Seeking Sustainable Growth: Short-Term Recovery, Long-Term Challenges”, the report expectedly reinforced the optimism on global growth acceleration against the backdrop of supportive financial condition, cyclical upswing of growth in advanced economies as well as resilient performance in emerging markets. Hence, global growth forecasts for 2017 and 2018 were raised by 10bps to 3.6% and 3.7% respectively, with the upward revision to forecast driven by higher projections for growth in the Euro Area and emerging economies such as China, Russia and Brazil.

The Fund also raised Advanced Economies' 2017 and 2018 growth forecasts by 20bps and 10bps to 2.2% and 2.0% respectively – both higher than the 1.7% recorded in 2016. Despite higher projections for China, Russia and Brazil, Emerging and Developing Economies growth forecast in 2017 was retained at 4.6% - albeit better than actual growth of 4.3% in 2016 - due to downward revision to India and Sub-Saharan Africa (SSA) growth forecasts. India’s growth forecast was slashed by 50bps to 6.7% as the country continues to experience feedback effects of the botched currency reform in 2016. SSA’s 2017 growth forecast was trimmed by 10bps to 2.6% as the largest economies in the region – Nigeria, South Africa and Angola – slowly recover from economic recessions triggered by commodity price downturn and political uncertainty. Outlook for South Africa remains subdued as the Fund cuts its 2017 growth projection for the economy by 30bps to 0.7% as political uncertainty continues to weigh on consumer and investment confidence. On the other hand, Nigeria’s 2017 and 2018 growth forecasts were retained at 0.8% and 1.7% respectively as the IMF highlighted segmentation in the foreign exchange market and banking-system fragilities as factors constraining output expansion. Afrinvest Research is more optimistic with 1.2% and 2.3% growth forecasts in 2017 and 2018 respectively.

Despite the synchronised expansion in global growth across regions, the IMF noted risks are skewed to the downside in the medium term considering the level of policy uncertainty in advanced economies, growth rebalancing in China and financial system stability risk in an environment of ultra-accommodative monetary policy.

September 2017 Inflation Outlook
The National Bureau of Statistics (NBS) is scheduled to release September 2017 inflation report next week, Tuesday 17th October. Ahead of the release, we project Year on Year (Y-o-Y) Headline Inflation to rise 8bps, relative to August, to 16.1%. Headline inflation has negatively surprised since the start of the year, with Month on Month (M-o-M) CPI growth averaging 1.4% on the back of increased pressure on food prices which took Food Inflation to a high of 20.3% in July. However, we have observed a steady moderation in M-o-M Headline CPI growth since peaking at 1.9% in May to 1.0% in August. The deceleration is being driven by M-o-M Food index growth, which we attribute to start of the harvest season. According to Famine Early Warning Systems Network (FEWSNET), the USAID funded provider of early warning and analysis on food insecurity, favourable main season harvest which is underway, has improved food access and led to decline in some staple food prices, though higher relative to previous year. Thus, we expect another deceleration in CPI M-o-M growth to 0.9% in September. However, with the thinning out of high-base effect which has essentially anchored the moderation in Y-o-Y inflation in 2017, we expect Y-o-Y Headline Inflation to marginally trend higher in the month.