We expect real GDP growth to remain around 4% in FY2021/22. Monetary policy remains accommodative. Adequate net capital inflows will offset the widening CA deficit, increasing FX reserves. We expect further fiscal consolidation supported by ongoing reforms under the IMF EFF arrangement. 

The 2021Q2 output contraction of 0.8% q/q (sa) surprised to the downside. As a result, we have revised our growth forecast for 2021 from 5.5% to 2.7%. We believe the poor Q2 reading is partially caused by statistical idiosyncrasies. A revision with the September release of GDP details is possible, but not likely. Over the medium term, we expect growth of 3.5-4.0% as reform efforts slow.

The Summer 2021 edition of the Insurance Update provides targeted updates on IIF insurance activities and events.

Upside inflation surprises prompted rate hikes in the Czech Republic and Hungary. If sustained, stable energy prices should help headline inflation to ease into 2022. FX stability should also limit imported inflation and pressure on consumer prices. However, tighter global liquidity conditions will likely prompt rate hikes in the CEE-4. We expect earlier action by the CNB and MNB, with the NBP and BNR waiting longer. Our forecast sees smaller and more gradual hikes than implied by market pricing.

The Zambian Kwacha appreciated sharply in July-August, by ~25%. High copper prices and larger non-resident flows are likely responsible. The IMF’s SDR allocation will provide substantial relief to FX reserves. While external pressure is lower, high inflation will weigh on the ZMW. If transitory factors do not dissipate, interest rate hikes may be needed. Our outlook turns more constructive as an IMF program appears likely.

Higher oil prices will lead to modest growth, shift the CA to a surplus, and narrow the fiscal deficit. The resurgence of COVID-19 has set the recovery back, but progress on vaccination has improved resiliency. Key reforms to reduce oil dependency and promote private sector growth are needed. 

Partial fiscal consolidation is underway following extraordinarily large deficits in 2020. Revenue has increased above pre-pandemic levels amid the ongoing growth recovery, but withdrawal of fiscal stimulus has been uneven. Fiscal pressure remains high given the debt buildup and deep social needs. 

Fiscal challenges in Sub-Saharan Africa have been exacerbated by the COVID-19 shock. We conduct a detailed analysis of adjustments under recently-approved IMF programs. Kenya and Uganda appear to be in need of the most ambitious consolidation efforts. Primary balance improvements are mostly driven by cuts to non-interest expenditures. We believe that program targets are largely achievable, with Uganda’s most ambitious. More IMF arrangements in SSA are on the horizon and Zambia will likely be a priority.