This year will be another tough one for African consumers, but conditions are expected to improve in 2024, according to a forecast by Oxford Economics.
This is consistent with the company’s view that inflation will ease further in the coming months and that monetary authorities will start to lower interest rates next year.
GDP per capita levels are also forecast to improve over the medium term, with North and East Africa among the regions expected to undergo robust growth in real GDP per capita.
Oxford Economics’ forecast finds that the consumer price baskets of African economies tend to have a higher weighting for foodstuffs than those of advanced economies. This implies increased spending inelasticity. African economies with relatively high levels of GDP per capita have lower CPI weightings for food prices, which is indicative of broader wealth levels.
But households are not just battling high price inflation; they must also contend with tighter monetary policy. In general, Oxford Economics estimates that most African economies are near peak inflation levels with price pressures expected to dissipate gradually over the coming months.
African central bankers were fairly quick to react and have done most of the heavy lifting from a policy-tightening perspective in 2022.
The analysis shows that Africa’s most industrialised economy, South Africa, stands out for both its economic size and higher levels of GDP per capita relative to other African peers. This has implications for the level of spending and spending patterns.
However, Egypt’s private consumption as a proportion of GDP, at 85%, is the highest on the continent, followed by Kenya and Ethiopia. Nigeria, which not only has the largest economy on the continent but also the biggest population, will struggle to record any meaningful growth in GDP per capita over the medium term. This, too, will have implications for the level of spending and spending patterns.
Inflation outlook: the peak is in sight
On average, the food price sub-indices across African economies account for roughly 36% of the respective consumer price index (CPI) baskets, compared with an average of 15% for advanced economies. African economies with relatively high levels of GDP per capita have lower weightings for food price inflation.
In general, Oxford Economics estimates that inflation in most African economies has peaked or will peak soon, with prices anticipated to dissipate gradually over the coming months.
Aggregate Africa inflation is forecast to average 17,6% in 2023, and to ease to 8,8% next year. Inflation is expected to moderate in most economies, with rapid disinflation seen in Angola. There are ongoing risks of persisting inflation in Egypt during 2023, whereas a turnaround is expected in Ghana.
Central bankers have done the heavy lifting
Households are not only battling high price inflation; they must also contend with tighter monetary policy. Oxford Economics expects less policy tightening this year compared with 2022, and forecast interest rates will ease at the end of 2023, with the trend likely to gather pace in 2024.
Consumption growth expected to ease in 2023
Tighter monetary policy in response to rising inflation had negative consequences for the real economy. The analysis points to a delayed uptick in consumption growth in Ghana, while the forecast Angola, Egypt, Ethiopia, and South Africa are to experience the largest moderations in consumption growth during 2023.
South African consumers demonstrated surprising resilience during 2022, despite high living costs and a cumulative 325-bps rise in interest rates that year alone.
That said, retail trade sales increased by only 1,7% in 2022, notably lower than the 6,3% growth recorded in 2021. Conditions are unlikely to be any easier this year with consumption expected to moderate as interest rates stay high and consumer prices remain elevated.
Consumer wealth across Africa
In 2020, real GDP per capita for Algeria, Angola, Nigeria, and South Africa was lower relative to 2010 levels. Conversely, Ethiopia, Ghana, Kenya, and Tanzania gained the most ground over the same period. The forecasts show that Egypt, Ghana, Kenya, Morocco, and Tanzania will experience the strongest growth in real GDP per capita between 2020 and 2030.
Future consumer spending hotspots
The war in Ukraine together with spillover effects from the pandemic has had a massive impact on Africa’s economy. Although the impact has been uneven and the economic recovery slow, underdeveloped regions, in general, are forecast to register strong growth in consumer spending over the medium term.
The picture for West Africa is mixed, as the economic performance of the region tends to be tied to international oil prices.
Oxford Economics foresees sluggish real GDP growth in Southern Africa to undermine household wealth.
East African economies have consistently produced the fastest growth rates on the continent for over a decade. The fundamentals that have underpinned this growth include favourable demographics and economic diversification, together with a steady expansion of basic services.
In North Africa, Egypt boasts one of the continent’s largest consumer markets, and the country is likely to remain a salient consumer destination. Morocco is another market to keep an eye on.