Angola expected to record economic contraction of 4.1% in 2020

15 April 2020

The Angolan economy is expected to contract by 4.1% in 2020, according to the latest forecast of the Economist Intelligence Unit (EIU) for the country, which compares with a previous projection of -2.6%, as a result of the fall in oil prices and the effects of the Covid-19 pandemic.

The document notes the fight for market share between Russia and Saudi Arabia and the drop in demand following the emergence of the new coronavirus that led to a fall in prices of the main product exported by Angola. The cost of a barrel of oil is now expected to  oscillate at around US$32 this year, whereas previous estimates pointed to a figure of around US$60 per barrel.

Angola’s General State Budget for 2020 was prepared on the basis of a price of a barrel of oil of $55, and the Minister of Finance, Vera Daves de Sousa, announced she is preparing a review of the document in order to adapt to the new situation, which will be based on a price of US$35 per barrel of oil.

The official statement issued at the end of March said that there would be a “slight drop in oil production that will total 1.36 million barrels of oil per day and production levels of diamonds will be maintained, and whose average price per carat is reduced from US$162  to US$100.3.”

In relation to these structural measures and measures to macroeconomic reprogramming, the minister warned that with the drop in income the country will see a worsening of devaluation and higher-than-expected inflation.

Consequently, she noted, the macroeconomic forecasts for 2020 point to a recession in 2020 of around 1.21%, as a result of the degradation of the economic framework.

Both the minister’s statement and the EIU projections are out of step with the agreement reached by Organization of Petroleum Exporting Countries (OPEC) and non-member countries to bolster the recent fall in oil prices is expected to lead to a cut in Angolan oil production to around 1.1 million barrels per day.

The cut in production, decided on 9 April, will be 23% for all signatory states and is based on October 2018, at which time Angola had daily production of 1.53 million barrels, which after reviewing the level, will entail a reduction to 1.18 million barrels per day.

The country has produced between 1.3 million and 1.4 million barrels per day in recent months, down from more than 1.6 million registered in 2017 and 2018, according to the OPEC reports.

The EIU forecasts for the remaining years analysed in this report, from 2019 to 2024, indicate that the Angolan economy will return to growth in 2021, although at a marginal rate of 0.1%, before moving to more expressive figures, of 3.4% and 3.6% in 2022 and 2023, respectively, and 5.8% in 2024.

The rate of inflation is expected to remain high, increasing to 24% this year before heading downward as the depreciation of Angola’s currency is reduced, and prices are expected to increases on year by an average 10.4% in the period from 2021 to 2024.

The kwanza, for its part, will continue to lose value against the major currencies, the dollar and the euro, and this year depreciate to 536.8 kwanzas per dollar, after which it will keep losing value but at a slower pace, and in 2024 is expected to reach a price of 584.2 kwanzas per dollar. (macauhub)