Rising inflation, falling currencies slow EA economic growth to 5.7pc
Monday December 18 2023
A customer picks fruits at Naivas Supermarket in Nyeri, Kenya on August 7, 2021. PHOTO | NMG
East African economies face a decline in the value of goods and services produced in 12 months to December 31,2023, a new report said, citing a challenging macroeconomic environment characterised by rising inflation, depreciating currencies, rising commodity prices and tightened global financial conditions.
Financial advisers at the consultant firm Deloitte expect the overall GDP growth rate for the five EAC partners -- Kenya, Uganda, Tanzania, Rwanda and the Democratic Republic of Congo (DRC)—and Ethiopia to slow down to 5.7 percent this year, from 6.1 percent in 2022.
The consultants said the socioeconomic shocks experienced in the East African region in 2022, including drought, political instability, commodity price hikes and currency depreciation are expected to feed into weaker economic activity and high levels of inflation in 2023.
Read: E. African economy managers in a fix
“Despite these headwinds, we remain cautiously optimistic about the outlook for 2024 for the region, with expectations of abating macroeconomic challenges and better global growth outcomes in the medium term," says the report dated December 13. “Growth is expected to recover in 2024, with real GDP growth averaging 6.3 percent, driven by a full recovery of the services sector and improved export performance.”
The report says the growth outlook could be affected by commodity price volatility, rising debt service costs and the fast pace of currency depreciation in most East African countries.
Average inflation in the region is expected to increase for the second consecutive year to 14.5 percent in 2023, from 13 percent in 2022, primarily driven by high food and energy prices and currency depreciation.
Read: Soaring inflation, low exports slow EA economies
“The inflationary pressures are expected to ease in 2024 as the global supply chain disruptions subside,” says the report, adding that East African A countries may still require fiscal adjustment policies to manage debts sustainably next year.
The average public debt as a percentage of GDP in East Africa stood at 51.6 percent in 2022 and is expected to remain elevated at 49.9 percent in 2023, due to the high cost of imports, weak recovery in exports, and rising international interest rates.