Less Contractionary Fiscal Stance To Help
Strong oil revenues will provide room for higher government spending in 2024. The 3.0% forecast increase in domestic oil output, and our Oil & Gas team’s expectation that average Brent crude prices will rise by 3.4% to USD85.0/bbl in 2024, informs our view that fiscal revenues will outperform. This will allow the government to raise expenditure while still recording a small budget surplus. While elevated interest payments will continue to limit room for fiscal stimulus, the government has hiked public-sector wages by 5.0%, with an additional 12.5% increase for the education sector approved in March, and is planning to raise spending on goods and services by 50.0% in 2024. Overall, we expect that government consumption will grow by 4.8% in 2024, resulting in a 0.7pp contribution to GDP growth, up from a 0.2pp subtraction in 2023.
Private Consumption To Face Multiple Headwinds
Rising inflation and borrowing costs will dampen household spending. Despite the agricultural sector’s strong performance in Q1 2024, the US Department of Agriculture estimates that the main maize harvest in April 2024 was below average, because of drought. This means that the incomes of farmers, which account for more than half of the workforce, are likely to stagnate over the short term, capping purchasing power. Moreover, the kwanza’s recent depreciation has continued to feed through to higher import costs, and we have revised up our 2024 average inflation forecast from 20.0% to 28.0%, signalling weakening purchasing power. The Banco Nacional de Angola (BNA) hiked its policy rate from 17.00% in October 2023 to 19.50% in May 2024, and we expect it to remain hawkish over H2 2024. This will keep borrowing costs elevated, discouraging credit uptake for consumption purposes. Overall, we forecast private consumption growth to slow from 2.0% in 2023 to 1.8% in 2024, adding just 0.9pp to headline growth.
Credit: Source link