Sub-Saharan Africa’s real gross domestic product (GDP) growth is forecasted at 3.8% in 2024, rising to 4.2% in 2025, but is insufficient for poverty reduction or recovery from past losses. Abebe Aemro Selassie, director of African Department at International Monetary Fund (IMF) said, “The growth rate we are seeing is far below the 6.7% rates the region enjoyed until about a decade ago.” Gradual improvements amid fiscal pressures The IMF World Economic Outlook report showed that Sub-Saharan Africa has made progress in key economic indicators, such as declining inflation, narrowing budget deficits and stabilising debt-to-GDP ratios. However, the region still faces significant fiscal challenges, such as high debt levels and interest payments. Inflation is projected to be 17.6% in 2023, 18.1% in 2024 and 12.3% in 2025. “Inflation forecasts for Sub-Saharan Africa remain in double-digit territory due to large outliers from past currency depreciation and underperformance in agriculture in Ethiopia,” IMF said. Global geopolitical tensions impact growth In addition to internal fiscal challenges, Sub-Saharan Africa’s economic growth is also influenced by external factors, particularly the ongoing geopolitical tensions around the world. The IMF has warned that instability in major economies could dampen the region’s growth prospects in 2025. Trade disruptions, reduced foreign investment and increased financial market volatility are some of the key risks facing the region. The Ukraine war has raised global energy prices, worsening inflation and slowing Sub-Saharan Africa’s recovery. Rising fuel costs strain the region’s limited energy access, while supply chain disruptions affect key goods. Sub-Saharan Africa shows gradual improvement, but poverty, debt and infrastructure issues hinder growth and development. Outlook for major economies in the region Sub-Saharan Africa’s largest emerging economies, Nigeria and South Africa, face subdued growth prospects. Nigeria’s GDP growth is projected at 3.1% in 2024, with a slight increase to 3.2% in 2025. However, growth remains below potential due to continued reliance on oil revenues and slow economic diversification. The IMF urged Nigeria to accelerate diversification into agriculture, manufacturing and technology to improve growth prospects. South Africa’s growth is similarly constrained, with GDP expected to grow by 1.5% in 2025, up from 0.8% in 2024 and 0.7% in 2023. Challenges include high inflation, slow-moving structural reforms, rising interest rates and high youth unemployment. Frequent power outages and an energy crisis further hinder industrial production and economic activity. Despite these challenges, both nations are implementing reforms, though at a slower pace than needed. To foster sustainable growth, Nigeria and South Africa must prioritise economic diversification, infrastructure improvement and governance strengthening. Banking sector outlook and resilience The banking sector in Sub-Saharan Africa remains resilient, driven by higher net interest margins and easing inflation. Fitch Ratings predicts that reduced interest rates will boost credit demand and economic activity, while improved exchange rate stability is set to enhance investor confidence. However, Fitch cautions that banks still face risks from volatile global markets and domestic challenges. Non-performing loans (NPLs) remain a concern, particularly in high-inflation countries where consumer purchasing power is under strain. Despite these hurdles, strong pre-impairment profits and high operating efficiency will help African banks mitigate risks. Profitability is further supported by non-interest income from trading gains and fees. Capital adequacy ratios remain stable, bolstered by regulatory reforms requiring increased capital reserves. This enhanced resilience is vital as economic pressures persist across the region. Meanwhile, foreign direct investment remains promising, as global financial conditions improve, attracting investors seeking to capitalise on Africa’s expanding middle class and growing demand for financial services. Moody’s Ratings forecasts economic stabilisation, spurred by monetary easing, infrastructure investment and diversification into services. However, these growth drivers may fall short of addressing unemployment and labour force expansion. Environmental factors, like Zambia’s drought, also pose risks to energy production and economic benefits from commodity prices. Currency devaluation and inflation will pressure asset quality, particularly for banks with large foreign-currency loan portfolios, prompting stricter lending standards. Regulatory changes are enhancing capital buffers, with Nigeria mandating higher minimum capital by 2026 and West African Economic and Monetary Union (WAEMU) doubling capital requirements over three years. Despite rising impairment charges, profitability is expected to grow, driven by improved net interest margins and fee income. Moody’s emphasised the importance of localised strategies and regulatory adaptations to navigate Africa’s complex economic landscape. Stabilisation amid global risks S&P said Africa’s economic outlook is marked by challenges and cautious optimism, particularly within its banking sector. Emerging markets, including many African economies, are expected to benefit from anticipated monetary easing by advanced economies like the US, improving financing conditions and aiding economic recovery across the region. South Africa’s banking sector is expected to gradually improve as macroeconomic conditions stabilise. Credit losses are also expected to decline as the economy recovers. However, African economies face risks related to external debt, and sustained fiscal discipline and currency stabilisation are essential for long-term resilience. Geopolitical risks and commodity markets, including the Israel-Hamas and Russia-Ukraine conflicts, add complexity to Africa’s economic prospects, disrupting global supply chains and impacting key commodities. Mixed prospects for Sub-Saharan Africa’s future Sub-Saharan Africa’s banking sector shows resilience amid improving macroeconomic conditions and global recovery. Despite ongoing challenges such as high debt, inflation and geopolitical instability, the 2025 outlook remains cautiously optimistic. With fiscal stability improving and monetary easing in play, the region has a clear path to growth, although risks persist.
