Our activity tracker slowed markedly in 2018, but has been broadly stable since September. Tariffs played a limited role in the slowdown, but are finally taking a toll on tradable sectors. Credit-intensive sectors are turning around, suggesting China’s policy stimulus still works.

Increasing international reserves provide a buffer, but inflows excluding official support are still weak. Amortization is lower in 2019 but still sizable and renewed domestic capital flight remains a risk.

Growth in 2019 will come from ongoing structural reforms to support non-oil activity, as the country has signaled that it will comply with the OPEC+ cuts. Medium-term prospects remain favorable. While the country has a new president, he is expected to remain committed to Nazarbayev's reform agenda. 

South Africa’s current account deficit remains wide, and foreign investor positioning is the heaviest in EM. Reserves to deal with these vulnerabilities are limited. High private external assets provide some buffers, as repatriation offsets non-resident outflows partially. External vulnerability is high despite additional buffers.

We recently returned from a research trip to South Africa where we met policymakers, analysts, rating agencies, and local asset managers. This note summarizes our key takeaways from the trip. 

Nationwide protests continue, triggered by dissatisfaction with the Al-Bashir regime. Sudan has contended for years with FX shortages and high inflation. Restoring confidence will require new leadership with the credibility and will to implement reform, and we expect a transition to take place. 

The IIF released a collection of papers analyzing the state of the Chinese economy. This research coincides with the IIF’s 2019 China Roundtable, held on the margins of the IMF/World Bank Spring Meetings. 

In the face of popular pressure, President Bouteflika stepped down after 20 years in power, yet much uncertainty remains about the transition to a new government. Algeria’s growth model of hydrocarbon-financed public spending is not feasible with low oil prices, and wide-ranging reforms are needed.

Non-resident capital flows to MENAP are projected to rise slightly to $215 billion in 2019. Strong fundamentals in key countries, including large financial buffers and low debt, should support flows. Sovereign bond issuance will remain the main source of non-resident capital inflows.

Venezuela’s GDP decline is nearly unprecedented, as is the collapse of oil output, its main export. The initial impact of US sanctions was manageable, but history suggests they will have severe effects. Recoveries from oil output collapses tend to be fast, making higher oil revenue feasible if policies change.