Economic growth in the East African Community (EAC) is expected to further moderate to 5.3 per cent this year, largely reflecting increasing global commodity prices coupled with supply chain shocks according to Deloitte.
Deloitte released the East Africa Macroeconomic Publication, themed ‘Resilience Through Tough Times’. The publication focuses on the economic rebound and sectoral resilience experienced across Kenya, Ethiopia, Tanzania, Uganda, and Rwanda in 2021 and 2022.
The region is struggling due to the damage from the pandemic, the Russian invasion of Ukraine has magnified the slowdown in the global economy, which is entering what could become a protracted period of feeble growth and elevated inflation.
“East Africa’s GDP growth prospects are expected to moderate to 5.3% in 2022 compared to 6.4% in 2021 due to increasing global commodity prices coupled with supply chain shocks,” Tewodros Sisay, Deloitte East Africa Corporate Finance and Economic Advisory Lead, said in a statement.
“We believe growth will further be affected by downside risks stemming from political uncertainty, depreciation of local currencies and reduced agricultural yields leading to higher inflationary environment. Our publication highlights the impact of these factors both from a broader macroeconomic perspective as well as through a deeper sectoral lens. In this year’s publication we have also introduced a look at East Africa’s mergers and acquisition landscape, with a focus on major trends in 2022.”
Growth will be slowed significantly due to regional central banks stance to tame mounting inflationary pressure in their economies.
For instance, Uganda’s inflation peaked to 9% in August due to increases in prices of food and other commodities, triggering further monetary policy tightening (increasing interest rates) to 9% – the Bank of Uganda’s steepest increase since June 2018.
Further spikes in inflation are likely to see weaker domestic household consumption, investment expenditure as tighter financial conditions reduce disposable incomes.
Michael Atingi-Ego, deputy governor at Bank of Uganda expects inflation levels to “continue to raise” in the twelve months ahead.
Outlook on Africa
Africa’s real GDP grew by 3.4% in 2021 compared to a contraction of 2.1% in 2020 due to a sharp improvement in global trade and commodity prices. It is expected to increase marginally to 4.0% in 2022 driven by private consumption and investment, continued expansion in the services sector and deepening economic integration.
On the other hand, East Africa’s GDP grew by 6.4% in 2021 from 3.1% in 2020 attributed to the global economic recovery from the Covid-19 pandemic.
Deloitte East Africa Financial Advisory Leader Gladys Makumi noted that the geo-political conflict between Russia and Ukraine “is expected to see global real GDP growth wane to 3.2% in 2022 compared to 6.1% in 2021.”