Africa’s Q1 markets show resilience as inflation pressures resurface

Africa’s economic trajectory in the first quarter of 2026 reveals a continent navigating a fragile balance between recovery and renewed external shocks.

The early part of the year extended a disinflation trend across several economies, with countries such as Zambia and Zimbabwe returning to single-digit inflation. But that progress may be short-lived.

A surge in geopolitical tensions—triggered by the escalating United States–Israel–Iran conflict—has since rippled through global energy markets, reintroducing inflationary pressures across key African economies. Oil-importing nations such as Kenya and Egypt have already begun to feel the strain through higher fuel costs, with broader spillovers expected in the months ahead.

Yet beneath these pressures, signs of resilience persist. Business activity improved, equity markets rallied strongly, and some currencies stabilised, underscoring the uneven but continuing recovery across the continent.

According to the World Bank’s latest Africa Economic Update, the transmission channel is clear: trade and energy.

“Prices of Brent crude oil and liquefied natural gas have risen sharply, while fertilizer prices have also increased amid disruption to shipments through the Strait of Hormuz. These developments threaten both current and future planting seasons, potentially exacerbating food insecurity,” the report said.

It warned further that combined with increased fuel costs, these pressures are expected to increase inflation—particularly in oil-importing countries—potentially prompting central banks to tighten monetary policy.

Business activity strengthens, but unevenly

Private sector activity showed modest improvement across the continent.

Six out of eight African economies tracked recorded Purchasing Managers Index readings above the 50-point expansion threshold in Q1—up from five in the same period last year—highlighting a gradual strengthening in economic momentum, according to S&P Global.

Uganda led with a PMI of 53.8, supported by strong demand, increased hiring, and rising input purchases.

At the other end, Egypt recorded the weakest performance, with an average PMI of 48.9, as rising input costs linked to the conflict weighed heavily on firms. Ghana followed with 49.7, unchanged from a year earlier despite improving inflation dynamics.

Currency markets diverge amid dollar pressures

Currency performance across the continent reflected a widening divergence in Q1.

Among 17 tracked currencies, Egypt, Ghana, and Tanzania recorded the steepest depreciations against the dollar—falling 14.4 percent, 5.53 percent, and 5.13 percent, respectively.

But a handful of currencies strengthened. Zambia’s kwacha led with a 13.3 percent appreciation to 19.18 per dollar by March 31, supported by firm copper prices and improving macro fundamentals.

Zimbabwe’s currency gained 2.35 percent, the CFA franc strengthened 1.85 percent, while Nigeria’s naira appreciated 4.35 percent to 1,382 per dollar, reflecting improved foreign exchange inflows and investor confidence following sweeping reforms.

Still, the broader picture remains fragile.

A joint report by the African Union and African Development Bank shows that at least 29 African currencies weakened as of March 24, up from 21 in 2025—raising the cost of debt servicing and imports.

The contrast with last year is stark:

“The dollar weakening was primarily attributed to increased economic policy uncertainty about the US economy in 2025. Between January and December 2025, the US Dollar Index fell by about 6.5 percent. As a result, currencies of 28 African countries appreciated against the dollar, as 21 depreciated,” AfDB said.

Equity markets extend rally, led by Ghana

African equities entered the year with strong momentum, building on last year’s gains as reforms, currency stabilisation, and improved investor sentiment continued to narrow the long-standing “Africa discount.”

Data from African Markets shows that among 17 tracked exchanges, Ghana emerged as the standout performer. The GSE Composite Index surged 40.53 percent in dollar terms year-to-date as of April 9, buoyed by improving macroeconomic conditions following its debt restructuring programme.

Nigeria followed closely, with the NGX All Share Index rising 35.85 percent, supported by stronger foreign investor participation, improved FX liquidity, and policy reforms.

Zimbabwe ranked third at 34.82 percent, reflecting relative currency stability under the ZiG framework and moderating inflation.

Elsewhere, Tanzania’s DSE All Share Index gained 31.44 percent, driven by robust economic growth and increased market participation, while Zambia’s LuSE advanced 20.08 percent, supported by elevated copper prices, improved power supply, and a recovery in agriculture.

Inflation: Disinflation stalls as energy shock bites

Inflation trends across Africa turned increasingly mixed by March.

While countries such as Ghana, Ethiopia, Angola and Mauritius continued to post disinflation, the pace has slowed while Egypt, Kenya and Zimbabwe recorded renewed upticks, largely driven by rising fuel prices.

Single-digit inflation economies—including Ghana (3.2 percent), Ethiopia (9.4 percent), Mauritius (2.7 percent), and Zambia (7.1 percent)—continued to see month-on-month declines, though at a moderating pace, according to Trading Economics data.

Tanzania maintained relative stability, with inflation at a nine-month low of 3.2 percent, while Angola’s inflation eased to 12.42 percent, marking its 21st consecutive monthly decline and the lowest level since July 2023.

However, upward pressures are building. Egypt’s inflation rose to 13.6 percent, while Kenya and Zimbabwe both recorded 4.4 percent, reflecting the pass-through from higher fuel costs.

Nigeria, where inflation slowed to 15.06 percent in February—its 11th consecutive monthly decline—is now expected to face renewed pressures from rising food and energy prices.

As the World Bank cautioned: “However, upside risks to inflation remain—global uncertainty, higher fuel and food prices as well as a stronger dollar stemming from conflict in the Middle East, and domestic fiscal slippage could reignite inflationary pressures and slow, or even reverse, the normalization of monetary policy.”

Central banks shift from easing to caution

Monetary policy across Africa has entered a more cautious phase.

Central banks in South Africa, Kenya, Egypt, Angola, Morocco, and Mozambique have all paused rate cuts in recent weeks, as rising oil prices and global uncertainty complicate the inflation outlook.

South Africa held its benchmark repo rate at 6.75 percent, extending a pause that began in September. Angola kept its rate at 17.5 percent, while Morocco maintained its benchmark at 2.25 percent for a fourth consecutive meeting.

Mozambique also held its MIMO rate at 9.25 percent, citing risks from flooding, political instability, and rising debt. Kenya paused at 8.75 percent, while Egypt held its deposit and lending rates at 19 percent and 20 percent, respectively.

Ghana remains the notable outlier.

The Bank of Ghana continued its easing cycle, cutting rates by 150 basis points to 14 percent, marking its fifth consecutive cut and bringing borrowing costs to their lowest level since October 2021.

A fragile equilibrium

Taken together, the first quarter highlights a continent still on a recovery path—but increasingly vulnerable to external shocks.

Equity markets are buoyant, business activity is improving, and some currencies have stabilised. Yet inflation risks are re-emerging, policy easing cycles are stalling, and currency pressures are intensifying.

The trajectory for the rest of the year will depend largely on one factor: how long the global energy shock persists—and how deeply it feeds into domestic prices across Africa’s import-dependent economies.