AMR: Democratic Republic of Congo

GDP growth – extractive sector could falter

We trim our GDP growth forecast to 4.2% y/y and 4.1% y/y for 2019 and 2020 respectively, from 4.5% y/y and 5.3% y/y, as we expect growth in the extractive sector to falter. A large copper and cobalt producer is set to place operations under care and maintenance for 2-y in Dec. In 2018, this mine produced 200k tons of copper and 27k tons of cobalt, which accounts for 16% and 25% of total production respectively.

Balance of payments – C/A Deficit to widen

The C/A balance is forecast at -2.4% of GDP and -3.9% at the end of 2019 and 2020 respectively. Typically, trade dynamics support the improvement in the C/A balance. However, it is likely that copper and cobalt volumes may decline over 2020 and 2021 as a large mine is set to mothball its operations at the end of this year for at least 2-FX reserves are too low to buffer external shocks. We don’t see imports moving too much higher than 1-m over the next 2-y.

Monetary policy- accommodative tilt

In Apr the MPC reduced the policy rate by 500bps to 9.0%. In Apr, by the BCC’s calculations, annual inflation fell below the target of 7.0%, and it has continued to ease in the interceding months. In the absence of disturbances, inflation is likely to continue moderating, possibly ending the year in single digits. Since inflation is expected to remain well below the BCC’s medium-term target, it would not be surprising if the BCC continued easing over the next year.

FX outlook – upward bias

Bar a commodity price or mineral production shock, the USD/CDF won’t depreciate materially over the next 4-m, ending the year around 1710. Since trade flows are expected to taper off from next year, this should precipitate a more meaningful move higher.