Angola will continue to struggle with slow economic growth over the next two years, as high inflation replaces low oil revenues as the economy's main headwind. While macroeconomic fundamentals will begin to improve from H216 as prices begin to stabilise and investment returns to the oil sector, we highlight the potentially destabilising effect of elevated political risk in the approach to 2017 presidential election and President Jose Eduardo Dos Santos' planned succession in 2018.
Significant devaluations made to the local currency will see Angola's fiscal deficit narrow dramatically over 2016, particularly given the government's efforts to curtail spending in the wake of the oil price collapse. While this will deny the economy a useful macroeconomic buffer in the form of fiscal stimulus during a period of weak growth, it will alleviate pressure on the government's debt burden.
Angola's balance of payments will show signs of improving health over the coming quarters, as a recovery in the country's oil sector returns greater flows of foreign capital into the economy via both the financial and current accounts. However, we see little sign of progress towards reducing the country's dependence on this sector over our short-term outlook.
Angola's central bank will enact further hikes over the course of 2016 in a bid to bolster real interest rates and temper inflation. However, a more stable currency will see inflation slow by 2017, prompting no further hikes, but historically high rates of inflation will similarly prevent against the beginning of looser monetary policy until 2018.
The recovery in oil prices portends a more stable period for the Angolan kwanza over the coming months, despite the persistence of a wide disparity between the official and black market exchange rate. High inflation and ample foreign reserves will encourage the central bank to maintain consistent intervention in the exchange rate.
While Angola faces elevated political uncertainty in the years ahead due to the forthcoming departure of long-time president Jose Eduardo Dos Santos, we continue to expect a managed succession whereby power is kept within his own party's elites. Although this will ensure broad policy continuity, it also means that the prospects for political and economic reform are limited and raises the likelihood of increased political unrest.
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|
|Real GDP growth, % y-o-y||4.8||2.2||2.1||2.4|
|Nominal GDP, USDbn||146.3||108.1||97.4||121.6|
|Consumer price inflation, % y-o-y, eop||7.5||14.3||27.5||16.0|
|Exchange rate AOA/USD, eop||102.86||135.22||173.00||180.00|
|Budget balance, % of GDP||-5.7||-8.9||-3.3||-0.8|
|Current account balance, % of GDP||-2.5||-7.0||-9.3||-4.4|
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