(Ecofin Agency) - Lower inflationary pressures and eased financial conditions are expected to gradually reduce financing costs in the region, but political and climate risks could weigh on its economic outlook.

Sub-Saharan Africa's economy is expected to grow by 4.2% in 2025, up from an estimated 3.8% in 2024, according to a report published by Moody's Ratings on January 8, 2025.

The report, titled "Sovereign – Sub-Saharan Africa: 2025 Outlook Stable as Financing Conditions Improve; but Debt Costs Still High," notes that this projected growth is higher than the region's average over the past decade. The last ten years were marked by challenges like the 2014-2016 drop in commodity prices, the COVID-19 pandemic, and inflation spikes caused by the Russia-Ukraine conflict.

This growth will be driven by easing financial conditions, increased investments in infrastructure and energy, faster economic reforms, and an expanding services sector. Moody's analysts highlighted that lower inflation and reduced interest rates set by major global central banks will support more relaxed monetary policies in the region, which could gradually lower financing costs. However, these costs are expected to remain higher than before the pandemic.

Many countries will still face challenges in accessing financing. High external debt servicing needs remain a significant risk compared to available foreign exchange reserves. A sustained increase in the value of the U.S. dollar in 2025 could also raise the cost of servicing foreign currency debt.

The report mentions that South Africa and Nigeria, the region's largest economies, will continue implementing economic reforms to boost growth and financial stability. South Africa is expected to see gradual progress, supported by significant reductions in power outages. Nigeria is likely to improve its economy by making its foreign exchange market more efficient.

Economic growth in Angola and the Republic of Congo is also expected to improve in 2025, thanks to new oil and gas projects that will offset declining production from older fields.

Moody’s predicts that foreign direct investment will remain strong in countries producing raw materials essential for the energy transition, such as the Democratic Republic of Congo and Namibia. However, climate risks could hurt the economic outlook for some countries. In Zambia, persistent drought has disrupted hydropower and mining production, erasing the benefits of higher copper prices.

Political risks could also affect stability in the region. In Côte d’Ivoire, elections in October 2025 could see President Alassane Ouattara run for a controversial fourth term. In Mozambique, the opposition continues to challenge the ruling party candidate’s victory in the October 2024 presidential election.