AMR: Senegal
We expect GDP growth of 5.2% y/y in 2022 and 7.6% y/y in 2023. We expect that the C/A deficit will reach 17.8% of GDP in 2022 and narrow to 9.9% of GDP in 2023. We see the pair USD/ XOF declining to 599 by year-end.
Population
16.7m
Nominal GDP
XOF 14,127billion
Real GDP growth
6.0%
CPI
3.8%
GDP growth
We trim our 2022 growth forecast to 5.2%y/y from 7.4%y/y due to the impact higher commodity and food prices, alongside the impact of the ongoing challenges posed by the pandemic on growth.
However, pending parliamentary elections this year, increased government spending on social equality programmes should support household consumptions. Relaxed travel restrictions should pave way for Tourism to recover robustly in 2023.
Balance of payments
Due to the impact of Russia/Ukraine war, import bill could increase and consequently worsen the C/A deficit to 17.8% in 2022. We should however see an improvement in C/A deficit over the medium term as export growth out paces import growth. Export growth would be supported by the hydrocarbon production from 2023.
Monetary policy
The BCEAO’s MPC may hike policy by 25bps in Q4:22 after being steady since mid-2022. Ongoing supply constraints and global commodity prices could push inflation higher, even as higher food cost have kept inflation elevated. We expect headline inflation to average 5.8% from an average of 2.2%y/y in 2021.
The central Bank’s policy interventions have focused on increasing banking system liquidity across the region to spur credit extension.
FX outlook
Following longer term costs to the eurozone economy from the Ukraine war, we expect a wider spread btw the US and eurozone implying a weaker euro. Hence, our euro/dollar forecast has been cut back from 1.4. The bias is for USD/XOF to reach a peak of 643 before declining to 599 by Dec.
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