Angola will face another challenging year in 2016 as low oil prices, a weak investment climate, and rising inflation all contribute to low real GDP growth. The outlook improves slightly for 2017 as accelerating oil production supports exports, but the structural weaknesses in the economy will remain largely unaddressed.
A depreciating currency, the removal of subsidies, and an increasing money supply will see inflation continue to rise through H116 in Angola, prompting the monetary policy committee of the Banco Nacional de Angola to make furthers hikes in the policy rate.
Angola's budget will record another heavy deficit in 2016 as even lower oil prices offset the impact on government revenues of several devaluations made to the local currency. Furthermore, the government's clear intention to increase expenditures over the course of the year will present another headwind to balancing the books.
The continued decline in oil prices will push Angola's current account deficit further into the red, despite falling imports. The deficit will be largely financed through the selling of central bank reserves and the increase in external debt issued by the government. Price stability and increasing production in the oil sector will offer some brief respite in 2017.
In the eventuality that Angolan president, Jose Eduardo Dos Santos, sticks to his word and steps down from office in 2017, any political succession will continue the struggle between elites within the current status-quo and their increasingly vocal grassroots critics. Any attempt to keep the presidency in the hands of the Dos Santos family will be particularly damaging, incurring a backlash both from snubbed elites and the wider population.
Major Forecast Changes
Revisions to our oil production forecast have had a significant bearing on our projections for all macroeconomic indicators, as the economy is highly dependent on the oil sector. GDP growth, the current account, and the fiscal deficit are all in a less robust position as a result.
The government decides it can no longer dedicate the amount of reserves required to sustain the kwanza's stability, and instead lets the currency free float at the market rate. This would likely lead to significant depreciation and subsequent inflation as import costs rose.
Public opposition to the incumbent government reaches boiling point and President Jose Eduardo dos Santos is forced out of office, leaving a power vacuum in his place. Populist groups rise to the fore in this environment, increasing the risk of industry nationalisation.
|e/f=BMI estimate/forecast. Source: National Sources/BMI|
|Nominal GDP, USDbn||146.3||107.4||97.8||108.1|
|Real GDP growth, % y-o-y||4.8||2.2||2.7||4.4|
|Consumer price inflation, % y-o-y, eop||7.5||14.3||17.2||13.0|
|Exchange rate AOA/USD, eop||102.87||135.23||173.00||180.00|
|Budget balance, % of GDP||-5.7||-8.7||-8.1||-2.0|
|Current account balance, % of GDP||-2.5||-7.7||-9.0||-3.1|
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