Despite rising fragmentation and uncertainties in global trade policy, Africa is now projected to grow by 4.2% in 2025 and 4.3% in 2026 - 0.3 percentage points higher than the May AEO projections, according to the African Development Bank's Macroeconomic Performance and Outlook (MEO) Update Report released today. The positive growth outlook is underpinned by buoyant private consumption spending, accommodative monetary policy, a weaker US dollar, which is aiding disinflation, and stronger growth among key trading partners.
Inflation is projected to average 13.7 percent in 2025 and 10.3 percent in 2026. In 35 countries, projected inflation is below 5 percent in 2025 and 2026, supported by strengthening domestic currencies, improved weather conditions, and easing food and fuel prices. However, double-digit inflation is projected in a dozen countries, driven by structural and macroeconomic challenges, including fiscal and external imbalances, increasing public debt, effects of conflict, climate-related shocks, and supply-demand mismatches.
The average fiscal deficit is projected to widen to 5.1 percent of GDP in 2025, up from the 4.7 percent projected in the May 2025 forecast, reflecting subdued government revenues due to low export earnings, tourism receipts, and low domestic revenue collection. Declining commodity prices (particularly oil and agricultural products) have negatively impacted the revenues of oil-exporting and non-resource-intensive countries, while the weaker US dollar is affecting tourism receipts in domestic currencies.
The current account deficit is projected to narrow to 1.9 percent of GDP in 2025 and 2.0 percent in 2026, compared to 2.5 percent and 2.7 percent, respectively, in the May 2025 forecast. This is driven by an improved trade balance, attributable to the favourable import bill resulting from the weaker US dollar. Despite the appreciation of domestic currencies, the improved global growth outlook has also supported export earnings in many African countries.
Africa's public debt increased by nearly 170 percent to over US$1.8 trillion between 2010 and 2024. This reflects the large infrastructure financing needs, responses to multiple shocks, and shifts in global financing. In addition, debt composition has shifted away from concessional lending toward external commercial sources, non-Paris Club creditors, and domestic borrowing. On the positive side, gross public debt-to-GDP ratios are slowing, from a median of 66.3 percent in 2023 to 65.5 percent in 2024, and are projected to fall below 65 percent in 2025 and 2026.
Geopolitical fragmentation, trade policy restrictions, regional and domestic conflicts, and climate-related shocks could undermine medium-term growth. This underscores the urgency of deepening intra-African trade under the African Continental Free Trade Area (AfCFTA), prioritizing value addition and diversifying the production and export base. Forward-looking policy actions are needed to address macroeconomic and structural bottlenecks, and to strengthen supply chains to improve value addition for sustained, and inclusive growth.
Central banks need to exercise prudent judgment in the management of monetary policy to strike a balance between containing inflation and supporting growth. This requires setting appropriate monetary and interest rate targets and coordinating policy actions to address emerging challenges.
On the fiscal side, governments should rationalize spending, improve expenditure efficiency including of state-owned enterprises, better target subsidies toward more productive and labor-intensive investments, and provide social support to the most vulnerable populations. Enhanced domestic resource mobilization through digital tax systems, improved tax administration, and curbing resource leakages will help to strengthen fiscal space for capital and social spending to spur growth.
Launched in January 2023, Africa's Macroeconomic Performance and Outlook report complements the African Development Bank's annual African Economic Outlook report, which focuses on key emerging policy issues relevant to the continent's development. The MEO is published in the first and fourth quarters of each year and the Update comes ahead of the 2026 MEO edition to be launched in January, which will highlight the evolution of macroeconomic conditions in the face of multiple and unprecedented shocks.
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