ECIC IR 2023

Integrated Report 2023

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external environment

Economic and Political Outlook The global economy is projected to decelerate to 2.9 percent in 2023 from 3.1 percent in 2022. This is underpinned by the synchronised tightening in monetary policy, supply chain disruptions and the impact of the Russia-Ukraine war. The global economic recovery remains fragmented as economic growth in different countries will be constrained by a myriad of domestic and geopolitical factors. Only one-in-ten advanced economies are projected to see improved economic growth in 2023, while an uptick is forecast for most emerging markets and developing economies supported by the reopening of the Chinese economy. Irrespective of the moderation in supply bottlenecks, global trade growth is projected to decline to 1.7% percent in 2023 compared to 2.7% in 2022, with most countries focusing on multilateral cooperation and reinforcing trade blocs. Global inflation has been slowing and is forecast at 6.6 percent in 2023 from 8.8 percent in 2022 due to declining commodity prices. Tighter financial conditions and further increases in interest rates by central banks in the first few months of 2023 will reduce credit growth. However, inflation in many countries is still significantly above central banks’ targets and increases the risk of financial distress in countries with pre-existing financial vulnerabilities. In the medium term, gold is likely to maintain its attractiveness in investment portfolios as an inflationary hedge. Meanwhile, the combined impact of global inflation and trade restrictions spurred by the Russia Ukraine war have caused significant food insecurity issues in low-income countries with up to 81 million people in eastern and southern Africa experiencing acute food insecurity, including famine. Climate change and adverse weather patterns alongside currency depreciations also contribute to the weak food security outlook. China’s annual parliamentary session culminated in President Xi Jinping securing an unprecedented third 5-year term. In his speech, the president focused on deteriorating relations with the US while the newly appointed premier, Li Qiang, pushed a more reconciliatory tone, indicating that cooperation between the two countries has mutual

benefits. Geopolitical strife is likely to remain high in coming years as deglobalisation continues. In her first official visit to the continent since taking office, U.S. Vice President, Kamala Harris, announced a financial support package of US$100 million for Benin, Ghana, Guinea, Cote d’Ivoire, and Togo, earmarked to address security, governance, and development issues in the region. In the global equity space, despite quarterly gains in both developed and emerging markets, developed markets namely the S&P 500, the Nikkei 225, and Euro Stoxx 50, outperformed emerging markets. Bonds assumed their traditional role of acting as a shock absorber given challenges in the banking sector when equities underperform. Bank shares came under pressure, and investors sought out the perceived safety of bonds, driving yields lower in March. The yield on the US 10-year government bond fell back 41 basis points to 3.5 percent in the first quarter of the year. The 2023 failure of a few US Banks – the first since the Global Financial Crisis- highlights financial stability risk in the context of heightened uncertainty and higher interest rates. Significant changes in interest rates affected bond values and prompted financial distress. This is however not likely to cause a financial crisis as policy makers responded swiftly through guarantees for deposits. On the African continent, uncertainty and delayed debt restructuring negotiations in unlocking vital IMF assistance for Ghana endured and will likely continue to dampen investor sentiment that could trigger more capital outflows. The delay is likely to result in borrowing constraints that will require revisions on spending plans and stricter fiscal consolidation. A protracted negotiation period into 2024 for Zambia’s debt restructuring will render similar results alongside a weaker currency that will worsen inflation pressure and further limit growth. According to the IMF, 45 percent of low-income countries and 25 percent of emerging market economies are at high risk of debt distress, while facing lower growth, and higher borrowing costs. Protests were observed in several countries on the continent in the first quarter of this year, and political uncertainty is expected to rise with various countries holding elections amidst waning support

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