So Daniel, we are almost halfway
through the year and we're seeing
that the Russia-Ukraine war is still
having quite significant impact on
many of our economies.
What are your views, going into
the second half of the year?
The key one is that we still
believe inflation will be a problem.
There is a growing view that potentially
inflation has peaked during the first
half of the year across most of the
developed markets or developed economies.
I don't think that is necessarily true
for a lot of emerging markets and
informing this is the fact that we're
still seeing increases across broader
oil prices and that translating to fuel
pump prices in our domestic markets.
Significant price hikes across your food baskets.
And then more importantly, the inflation
expectations is growing for a lot
of businesses.
So if you think early on this year,
PMI across most of our economies
was well above 50.
There was an excitement coming
out of this pandemic period where
we're going to enter a growth spurt,
so to speak, over the next few years.
And a lot of businesses were excited
around that.
And they revealed during the surveys
that we're seeing demand coming
into the market.
We are ramping up production.
Now they're having to deal with a 10-15%
increase across their input costs
in addition to what they already dealt
with during the pandemic.
And they're trying to, of course,
as one would, you'll see that translation
going immediately to the consumer
through pricing.
And I think this theme of inflation being
higher for longer is definitely something
that are baked into a lot of our forecasts
for the second half of the year.
There certainly is a view that inflation is
not transitory, as we thought last year,
and that inflation will definitely remain
longer, higher for longer.
But what is the implication on growth?
How has that affected your growth
forecasts and your views on growth for
many of our key African economies?
Again, first half of the year, I was of the
view that export-led growth will be what
will carry a lot of these economies into your
4%, 5% growth over the sort of short to
medium term.
That hasn't changed to a great extent,
but it has been tweaked.
And what I mean by this, firstly, your import
bill across most of our markets is looking
considerably different because of the
amount of fuel that the countries have to import.
The bulk of our economies, as you well aware
Ruusa, are net importers as well.
So that's the first problem.
Secondly, with high inflation, it's starting
to have an impact on consumers and whether
or not they're going to be spending to
the extent that they were.
And I think that's why through our high
frequency data, we hearing a lot of
businesses telling us that demand is
slowly being diminished from the market.
It's not as robust or as strong as they
thought it would be.
And that has then pretty much halted this,
you know, strong recovery that we
expected to see.
And so growth is not going to be
near your 4-5% easy-go-lucky type
of scenario anymore.
I think it's a situation now where we're
dealing with few sectors potentially growing,
but then having a long period of time before
our consumers actually recover.
So most central banks react to inflation
through interest rates.
Do you also expect interest rate hikes
in a lot of our key economies?
Look, unfortunately, this is something
that has already started.
And I keep saying, unfortunately, because
they're having to hike interest rates at a time
when really, you know, accommodative
monetary policy probably would have
been more suited given the frailty of
the various economies.
But, yes, you know, we're dealing with
hikes that are north of 200 to 300bp in
different markets.
And this will be a key challenge.
The obvious reason, of course, a lot of
them are protected against capital outflows.
A lot of these markets also try to protect
the currency to the extent that they can.
The subsequent impact, and that, again,
not to over extend the topic, really beating
a dead horse here, but really the impact on
the consumer is becoming even more
aggressive because now they have to
deal with significantly higher interest rates.
Notwithstanding, of course, there is also a
spillover effect on the fiscal side, given that,
you know, across the curve we've seen it
become more expensive for governments to
do their funding, especially if they're sourcing
this domestically.
So, Daniel, we're seeing high inflation rates,
low growth, and there's a view that probably
monetary policy has reached its limits,
so that monetary policy alone is not sufficient.
What is the role of fiscal policy in all of this,
given all these developments?
It's going to be very difficult for a lot
of the governments who said they were
supposed to be entering this period of
deep fiscal consolidation.
You know, they've ramped up debts
during the pandemic.
And now there's supposed to be this
period where we consolidate.
And we've started seeing a lot of
governments actually produce numbers
where expenditure growth is relatively
mute and they've been quite conservative
around revenue.
Now that you're dealing with all of this,
it's become quite typical then that,
you know, people then start relying a
lot more on fiscal policy.
And I do think this will be a challenge for
a lot of markets because there isn't
that much room.
There isn't that much fiscal space to
begin with.
And the impact that that will have on
your interest rate expense, if you do ramp
up massive budget deficits over the next
few years, you know, could become a problem
five years from now, ten years from now.
And, you know, some different economies
are on different parts of the scale.
But, you know, the long and short of it,
there will likely be a reliance more on fiscal.
But there isn't that much room to actually
extend this.
And I think, you know, the idea, I guess, is
people are going to have to just try and
weather this storm to the best ability or to
the best that they can over the next few years.