Accra, Ghana, November 13, 2017//-The likelihood of radical policy changes is slim in Angola’s new government, since any attempt to push through farreaching reforms could pit the incumbent President João Lourenço against his former boss dos Santos.
This does not bode well for a country that is plagued by market distortions in the foreign exchange (FX) system and persistent government interventions in the economy, which stifles growth in the private sector, according to a second estimate compiled by FocusEconomics, a leading provider of economic analysis and forecasts for 127 countries in Africa, Asia, Europe and the Americas.
The oil-dependent Angolan economy is expected to benefit from the ongoing upturn in oil markets. Nevertheless, growth will remain anemic and constrained by persistent challenges faced by the non-oil economy.
Analysts expect GDP to expand 2.6% in 2018, which is unchanged from last month’s forecast. For 2019, growth is expected to reach 2.7%.
Inflation picked up from 27.0% in August to 27.5% in September. At its most recent policy meeting on 29 September, the Central Bank left interest rates unchanged at their current rate of 16.0% to push down inflation.
FocusEconomics panelists expect inflation to average 18.6% in 2018 and 13.6% in 2019.
REAL SECTOR: Economic sentiment improves slightly in Q2 but remains pessimistic
The economic climate indicator (ICE, Indicador de Clima Económico), published by the National Statistical Institute, rose from minus 24 points in first quarter (Q1) to minus 21 in Q2.
Despite the uptick, the index remains entrenched deep in negative territory, where it has been since Q3 2015. The uptick was driven by improving business sentiment in the tourism, mining, construction and communications sectors, while the manufacturing, trade and transport industries saw business sentiment deteriorate relative to Q1.
All series remain below their respective long-run averages. The FocusEconomics Consensus Forecast panel sees GDP expanding 2.6% in 2017, which is unchanged from last month’s forecast. In 2018, they see the economy growing 2.7%.
MONETARY SECTOR: Inflation edges up in September
Consumer prices in the province of Luanda rose 2.54% in September from the previous month, coming in above August’s 1.66% month-on-month increase. According to the National Statistical Institute (Instituto Nacional de Estatística), September’s increase reflected higher prices in 11 of the 12 components of the index.
Prices for clothing and footwear, health and alcoholic beverages and tobacco increased the most. Inflation picked up from August’s over one-year low of 27.0% to 27.5% in September, putting an end to a sequence of eight consecutive monthly declines. Annual average inflation declined from 36.1% in August to 35.5% in September.
This confirms that price pressures are declining despite the monthly increase and demonstrates that the National Bank of Angola’s (BNA) significant tightening cycle in 2016 is bearing fruit.
FocusEconomics Consensus Forecast panel participants expect inflation of 18.6% in 2017, which is up 0.7 percentage points from last month’s projection. For 2018, the panel foresees inflation of 13.6%.
MONETARY SECTOR: Bank of Angola stays put in September
At its 29 September monetary policy meeting, the National Bank of Angola (Banco Nacional de Angola, BNA) decided to keep the Basic Reference Rate on hold at its record high of 16.00%.
It also left its other monetary policy instruments unchanged. The Marginal Lending Facility rate was left untouched at 20.00%. The Seven-Day Liquidity Absorption Facility was left unchanged at 2.75%; it was last lowered by 50 basis points in July.
The Bank’s stance comes against a backdrop of moderating yet elevated inflation. The tighter monetary policy adopted by the BNA over the last 12 months has contributed to stemming rising inflation due to a weak kwanza and subsidy cuts.
However, despite weak domestic demand, lowering rates is considered ill timed. The economic climate indicator remained deep in negative territory in Q2, and inflation expectations among firms and businesses remain high, which undermines Bank efforts to lower inflation.
As a result, any loosening of monetary policy could risk reversing inflation’s downward trend. The Bank’s press statement lacks forward guidance, but analysts expect monetary conditions to remain restrictive in the upcoming months due to stubbornly high inflation.
If inflation continues to decline to more acceptable levels, they project the first rate cut in the Basic Reference Rate sometime in 2018.
The next monetary policy meeting is scheduled for 27 October. FocusEconomics Consensus Forecast panelists expect the BNA Basic Reference Rate to end 2017 at 15.00% and 2018 at 13.33%.
EXTERNAL SECTOR : Cabinda crude oil continues on an upward path in September
The average price of Angola’s Cabinda crude oil increased from USD 52.1 in August to USD 56.8 in September. September’s figure was 23.8% higher year-on-year and 9.1% above the average price in August. On 12 October, the price of Angola’s Cabinda oil was USD 56.8, which was 1.8% higher than on the same day in September and 16.4% above the same day last year. On a year-to-date basis, Cabinda oil prices have risen 3.5%.
A spike in geopolitical tensions following the Kurdish independence referendum on 25 September, higher crude demand in the United States following a steep decline in inventories of oil distillates, and expectations of higher demand for the commodity on the back of faster global growth have all played a role in higher oil prices.
More importantly, reports of more countries supporting a further extension of the OPEC output cut deal from its current deadline of March 2018 have further boosted prices. FocusEconomics Consensus Forecast panelists expect oil production to reach 1.78 mbpd in 2017. In 2018, the panel sees crude output inching up to 1.85 million barrels per day (mbpd).
Instructively, a new era in Angolan politics began after João Lourenço was sworn in as the country’s president on 26 September, following 38 years of uninterrupted rule by his predecessor, José Eduardo dos Santos.
The new president started his term with bold promises to fight endemic corruption and revive economic activity.
His ambitious plans were, however, received skeptically by political opponents and analysts alike, as the long-serving former president still wields vast influence in the country’s political life, and the dos Santos family remains in power in key government posts, including at the state oil company.
African Eye Report