Prospects Good for Angola’s Economic Growth

Following an impressive return to form in 2012, Angola’s economic growth prospects over the next five years remain fairly strong, says Business Monitor. The data and intelligence service expects real gross domestic product (GDP) expansion of 7.3% in 2013 and 6.3% in 2014 on the back of surging fixed investment and rebounding oil production.

In its just-issued
‘Angola Business Forecast Report’
, the group notes that 12 months since the one-sided re-election of president José Eduardo dos Santos and his ruling Movimento Popular de Libertação de Angola (MPLA) in the southern Africa republic, there has been little change to the political status quo. With the president giving little away on the topic of succession, the outlook over the short-to-medium term is one of continued stability.

With inflation remarkably stable at close to 9.0% – a level it has hovered around since the end of last year – the monetary authorities have shifted their focus firmly towards stimulating growth. The Banco Nacional de Angola have enacted 50 basis points (bps) worth of interest rate cuts so far in 2013 and Business Monitor expect monetary policy to remain accommodative over the coming quarters.

The group’s outlook for Angola’s balance of payments position remains broadly favourable, and despite a vulnerability to external shocks, it believes Angola’s external position is strong by regional standards. Having peaked at an estimated 11.8% of GDP in 2011, the forecast is for Angola’s current account surplus to narrow steadily to 5.3% of GDP by 2016.

Business Monitor has adjusted its forecasts for Angola’s fiscal accounts this quarter. The revision is mainly due to the recent rally in global oil prices, driven in part by developments in Syria. It now believes Angola will post a narrower-than-anticipated budget deficit in 2013 on the back of increased oil revenues. Projecting deficits are 2.7% of GDP in 2013 (revised up from 3.5%) and 4.5% in 2014 (revised down from 3.4%).

While the group expects oil production to contribute positively to GDP growth over the medium term (before peaking around 2018) as a number of major projects start production, forecasts remain subject to the myriad uncertainties associated with oil production and exploration in Angola, as well as to volatility in global oil prices.

As the forecasts only include planned oil projects, the upside potential posed by the country’s vast and as yet unexploited sub-salt reserves pose a major upside risk to their forecasts over the medium-to-long term. Although inflation has been remarkably stable in recent quarters, Angola remains susceptible to fluctuations in the cost of goods and services given its heavy dependence on imports. A sharp rise in regional food prices, caused by drought for instance, would pose a significant downside risk to the forecasts.

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