Africa’s average inflation rate is forecasted to decrease from 8.6% in 2024 to 7.2% in 2025, according to the February 2025 Afreximbank Research Monthly Developments in the African Macroeconomic Environment report.
The report highlights the historical link between inflation and interest rates across the continent, noting their strong correlation during periods of elevated inflation.
The study suggests that as inflationary pressures ease, central banks may gain more flexibility to adjust monetary policies.
African economies outperform expectations
This could not only foster economic growth but also enhance consumer purchasing power, lower borrowing costs, and attract greater investment.
While 2024 saw 18 out of 29 monitored African economies outperform expectations, the report projects that only 11 of these economies will continue an upward trajectory in 2025.
It emphasizes that economic performance remains fragile, influenced by political instability, global economic fluctuations, and regional uncertainties.
Moreover, commodity-dependent nations face additional risks due to price volatility, underscoring the critical role of domestic policies in shaping future growth.
Impact of a strong US dollar on African currencies
The report also explains the impact of a strong US dollar on African currencies in early 2025, which has been fueled by concerns over trade wars and geopolitical uncertainty.
Many economies heavily reliant on imports and external debt are grappling with increased costs of goods and rising debt burdens.
However, countries like Angola and Morocco have shown resilience, supported by sound economic fundamentals, robust foreign exchange reserves, and effective policy measures.
“Countries with relatively weaker macroeconomic positions, such as Nigeria, Egypt, and Ghana, have faced sharper currency depreciations, exacerbated by inflationary risks, fiscal deficits, and investor concerns,” the report noted. “Managing exchange rate fluctuations will require a mix of prudent monetary policies, increased foreign investments, and diversification strategies to reduce dependence on volatile external factors”
Looking ahead, the report advises governments to prioritize stabilizing inflation, ensuring exchange rate stability, and creating investment-friendly environments to navigate economic uncertainties.
More insights
It also stresses the importance of addressing structural weaknesses, improving governance, and adopting policies that foster long-term economic resilience.
- Earlier in the week, Nairametrics reported that Nigeria, alongside nine other African countries, accounts for 69 per cent of the continent’s total external debt stock, according to a new report by Afreximbank.
- The report, African Debt Outlook: A Ray of Optimism, highlights Nigeria’s significant debt burden, placing it among the top three most indebted countries, with 8 per cent of Africa’s total external debt.
- It identifies South Africa as the largest debtor with 14 per cent of Africa’s external debt, followed by Egypt at 13 per cent.
- Morocco and Mozambique each account for 6 per cent, while Angola holds 5 per cent. Kenya and Ghana have 4 per cent each, and Côte d’Ivoire and Senegal hold 3 per cent each.
The report attributes the high levels of debt to external borrowing driven by underdeveloped financial markets, volatility in foreign exchange earnings, and the need for infrastructure financing.