Boston, MA -- (ReleaseWire) -- 05/02/2014 -- Prime Minister Meles Zenawi's death did not have the politically destabilising effect many anticipated, and his successor Hailemariam Desalegn's adherence to the status quo should see policy continuity right until the elections in 2015. Even so, we expect ethno-religious divisions and social unrest to be a source of tension over the coming months.
Ethiopia will be among the fastest growing economies in Sub-Saharan Africa over the next few years and we are forecasting average growth of 6.0% annually between 2014 and 2018. Growth will be driven by heavy public investment into infrastructure and agriculture, and an increasingly buoyant consumer segment.
Inflation in Ethiopia has slowed markedly in recent years since reaching a peak of 40.6% year-on-year (y-o-y) in August 2011 and we expect inflation to remain relatively stable over the coming quarters, hovering broadly between 7.0 and 9.0% year-on-year. The view is based primarily on a relatively benign outlook for food prices due to favourable agricultural production prospects in the months ahead.
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Despite robust growth in current transfers, mainly in the form of remittance flows, Ethiopia will sustain a current account deficit in the region of 5.0-8.0% of GDP between 2014 and 2018, driven by a gaping trade deficit.
Major Forecast Changes
No major forecast changes
Key Risks To Outlook
Despite the relatively smooth handover of power following Meles Zenawi's death, political risks will remain heightened. Increasing social tensions raise the prospect of an uptick in domestic unrest, while a behind-closed-doors power struggle among the political elite could threaten policymaking.
As is the case for many African nations, Ethiopia is highly susceptible to volatility in global markets, particularly commodity prices (notably coffee and gold), which can in turn pose both upside and downside risks to export revenues and headline growth.
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