Analysis by Region - Emerging Markets - Ethiopia

Analysis by Region - Emerging Markets - Ethiopia

At 3.8%, our estimate for 2021/22 GDP growth falls well below the consensus. The soft growth estimate reflects our concerns that, although growth in monetary aggregates hinted at a pick-up in domestic demand, household consumption softened in the face of surging inflation. At the same time, dollar drought conditions amplified the divergence between the official and parallel currency markets, while the private sector grappled with product scarcity, disruptions to trade, and longer periods to fill FX orders. For the current fiscal year, we forecast a slowdown in GDP growth to 3.6%. Our baseline scenario assumes that the reform drive will be plagued by delays owing to the resurgence of internal conflict in August. Furthermore, we consider the balance of risks as tilted towards a sharper slowdown in GDP growth. A slow pick-up in FDI in response to political risks holds severe repercussions for the external position and default probability.