East African economies will decline this year driven by political instability, unreliable rainfall and reducing agricultural yields, economists at Deloitte say.
In its latest Macroeconomic Outlook Report for East Africa Volume III, Deloitte forecasts a decline to 5.3 percent compared to 6.4 percent in 2021 but up from 3.1 percent in 2020.
The report that covered Kenya, Ethiopia, Tanzania, Uganda and Rwanda shows that the region’s gross domestic product (GDP) has been heavily impacted by the political instability in Kenya and Ethiopia – the major economic growth drivers in the region – and reduced agricultural sector growth.
East Africa’s inflation is forecast to increase to 8.6 percent in 2022 from 7.7 percent in 2021 driven by elevated global food and energy prices.
The report titled ‘Resilience through tough times’ shows that sanctions imposed on Russia have led to supply chain disruptions and export restrictions to the EA economies, manifested through rising inflation, which is expected to last the duration of the conflict.
The EA countries, being net importers, are expected to experience a two-fold upward pressure on prices, driven by supply side shortages and global inflationary movements.
High commodity prices
According to the report the rise in fuel and food prices has negatively affected household spending on essential food and non-food items.
The region’s monthly price of the local food basket increased by 39.3 percent to $17 per capita across the EA countries in May 2022, from $12.2 in the same period in 2021.
Globally, l inflation is expected to increase to 9.2 percent in 2022 from 5.3 percent in 2021, largely on high energy and food inflation.
These effects are expected to see global real GDP growth wane to 3.2 percent in 2022 from 6.1 percent in 2021.
Prospects of a recovery in the global output in 2022 have been dimmed following the materialisation of higher-than-expected inflation especially in advanced economies.
A geo-political conflict between Russia and Ukraine poses key downside risks to economies globally including inflationary pressures, supply chain disruptions, asset bubbles and prolonged bull markets.
Last year, foreign direct inflows to the region increased by 34.9 percent to $8.2billion from $6.1 billion in 2020 when the Covid-19 pandemic weighed heavily on investment.