Ghana struggling with debt, oil price winners and losers

The sharp rise in Ghana’s sovereign dollar bond yields this month suggests that investors are coming around to our view about the country’s worrying debt trajectory. Meanwhile, the rebound in oil prices will, as usual, split Sub-Saharan African economies into winners and losers. But the region’s oil producers will probably not be able to reap the full benefits from higher prices.

22 October 2021

Tentative signs we are past the peak in energy prices

The meteoric rise in energy commodity prices over the last few months lost momentum this week. Natural gas and coal prices were down particularly sharply in Europe after President Putin reiterated comments that there is scope for a rise in supply from Russia if Nord Stream 2 is approved. That said, they were also down in Asia following an announcement by China’s state planner that it would take steps to stem the surge in prices. Of course, the situation remains highly fluid and, even in a best case scenario, energy commodity prices are still likely to remain high for several months yet – not least as stocks will need to be rebuilt from their current lows. However, the big picture is that the risk of a renewed surge in energy prices seems to have fallen. There is little in the way of major data releases next week, though we will continue to closely monitor developments in the energy market. Otherwise, we will publish our Commodities Overview Outlook towards the end of the week. The main message is that we now expect most commodity prices to remain well supported for the rest of this year, but we are sticking to our view that they will come off the boil in 2022 as issues with supply fade and the slowdown in China’s economy intensifies.

22 October 2021

Higher oil prices won’t stop inflation falling next year

The recent upward revision to our oil price forecast does little to alter our view that inflation will fall in 2022. Even if oil prices don’t fall as we expect them to and they stay at their current level, energy inflation would drop back next year, dragging on headline rates. At the same time, though, if oil prices stayed high, this would be yet another factor delaying the decline in inflation, which would make some DM central banks uncomfortable. Moreover, higher oil prices would imply a meaningful hit to consumer spending.

21 October 2021
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Oil woes to hold back recoveries in Angola & Nigeria

Falling oil production has weighed on the Nigerian and Angolan economies, with the latter likely to suffer its sixth consecutive annual decline in GDP this year. While output should rise next year, we doubt that either will be able to meet its OPEC+ quota, preventing faster recoveries from taking hold in 2022.

US Weekly Petroleum Status Report

Strong exports contributed to the first drawdown in stocks in four weeks last week, supporting already-high crude prices. What’s more, stocks at the hub of Cushing, Oklahoma, also fell and they are now down about 50% y/y. With demand looking healthy, prices are likely to remain high for a few months yet.

What does the energy price surge mean for the Gulf?

Higher oil and gas revenues are likely to prompt a modest shift to looser fiscal policy in the large Gulf economies, although Bahrain and Oman will still need to stick to austerity. Meanwhile, if OPEC+ were to raise production quotas more quickly in response to the surge in global energy prices, that would pose a major upside risk to our above-consensus GDP growth forecasts.

Coal is back in fashion, but not for long

Coal prices are likely to remain high over the next six months as high demand weighs on already-low stocks. Prices should drop back next year, though, as demand growth moderates and supply improves.

19 October 2021

Running into troubled waters

Supply chain problems will slow the recovery and keep inflation above target until around the middle of next year. Beyond that, however, the economy should get back on track. After regaining its pre-crisis level later this year, output is likely to converge with its pre-pandemic trend. Meanwhile, we do not expect significant second-round effects from the recent surge in prices and think wage increases will remain quite modest. Headline inflation is likely to drop back below the ECB’s target by the end of next year, as energy inflation turns negative. So while the ECB will end its emergency PEPP purchases next March, it will step up its regular asset purchases and leave the deposit rate at -0.5% until around 2025, which is a lot later than financial markets anticipate.

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