Just a year ago, the global economy was enjoying a stronger and synchronized expansion. Growth was robust in the US, Europe, Japan and most emerging markets. Corporate profits were rising, global trade swelling and business optimism at multi-year highs. In fact, overall GDP during the period expanded at its fastest pace in five-years, boosting confidence that the global economy was finally escaping the low-growth trap!
A year later, the exuberance is fast fading and may give way to a broad-based slow down. Markets are already pricing in the probability of a recession, picking signals from a partially inverted US yield curve. While a recession after a protracted period of expansion may not be unusual, investors’ greatest fear may perhaps be the likely limitations to policy response should the world slip into a recession. Can governments and central banks handle another downturn?
While most forecasts are not predicting a recession until perhaps in 2020, asset prices will continue to adjust accordingly in 2019 with increased sensitivity to data and any negative rhetoric that could escalate these concerns. Thus, risk aversion may still be the name of the game!
In the region,
- Kenya: Robust agricultural production coupled with improved public spending should power the economy to a stronger close in 2018. A stable political environment has supported business investments while low inflation and increased remittances have underpinned personal consumption and investments. While forecasts remain generally bullish, the outcome is still dependent on vagaries of weather, developments in credit markets and pace of consolidation.
- Tanzania: Policy uncertainty has been the main headwind for Tanzania over the last two years. This has considerably dampened investor and business sentiment, undermining optimal output growth for the country. To this, the decision by the government to buy cashew nuts from farmers due to what was perceived as poor pricing, though well intended, has made investors jittery by aggravating the uncertainty in the policy space.
- Uganda: Strong readings by leading economic indicators including the Composite Index of Economic Activity(CIEA) underline a robust economic growth momentum in Uganda. After growing at 6.1% in the first half of the year, the economy is projected to maintain a solid pace although a higher base may see the pace moderate somewhat on an annualized basis.
- Rwanda: The economic outlook remains broadly sanguine. A combination of increased public spending, private sector investments and a resilient service sector will sustain solid growth in to 2019 especially in trade, transport and tourism. Investor sentiment remains generally positive although concerns over the persistent dearth of dollars in the market remain a big impediment for foreign investors