Earlier this month, US Stock markets lost a staggering US$4 trillion from their February 19 peak. The Trump administration’s well-telegraphed tariff imposition, coupled with growing concerns over a US growth slowdown and the release of weaker employment data, ignited fears of a US growth recession. This volatile mix triggered a significant market correction. If this trend persists, the sharp rise in the market’s fear gauge, the VIX index, signals the potential for heightened financial risk aversion.
This emerging risk regime could also feature a continued weakening of the US dollar, which has already declined by over 2 per cent in trade-weighted terms since President Trump took office, and by approximately 3 per cent since its mid-January peak. Furthermore, US interest rates, reflecting mounting growth concerns, may also see further declines. This re-assessment of the US economy and its asset prices could prove beneficial for certain low- and middle-income economies, including those in Africa. Over 70 per cent of Africa’s total public external debt is US dollar-denominated.
The likely deterioration in the US labour market, compounded by persistently high inflation, paints an unfavourable US macroeconomic policy environment. The ongoing uncertainty surrounding US trade policy threatens to further dampen business and consumer sentiment. Alarmingly, now well over 200,000 workers have been laid off in 2025 thus far, marking the highest year-to-date total since the 2009 financial crisis. This trend is expected to continue, with layoffs expected to rise across various sectors, leading to a broader growth slowdown.
The price volatility in US-based and US-dollar-denominated assets presents a double-edged sword for other developed and developing economies. Commodity price impacts will likely vary significantly, influenced by gender, sector and country-specific contexts. Economies with robust macroeconomic fundamentals, including those in Africa, could attract increased investment inflows and remittances, even amidst potential home bias among US investors.
The general decline in oil, coal and natural gas prices could translate to lower transport costs and more affordable imports. Similarly, the resilience of some primary goods and commodity prices could benefit a number of lower-income economies on the continent. However, the volatility in oil prices warrants careful attention, given the severe economic fallout experienced by resource-dependent economises like Nigeria and Angola during the 2014-2015 downturn, from which they have yet to fully recover a decade later.
Developments in commodity and primary goods prices offer a mixed outlook for some of Africa’s commodity producers. While broad indices have declined since the start of the Russia–Ukraine war (RUW), they remain above pre-RUW levels (Figure 1). In many cases, upgrades to sovereign bond ratings for resource exporters have often coincided with commodity price jumps, such as the nearly 350 per cent rise in cocoa prices since February 2021, as seen in assessments for Côte d’Ivoire.
Figure 1: Primary and commodity good prices (Percentage changes)
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Image credit:Source: International Monetary Fund, ODI Global
The continued weakening of the US dollar, alongside weaker US growth prospects, could prove to be significant for many African economies. Its ongoing depreciation in trade-weighted terms may foreshadow further declines and is reminiscent of President Trump’s first term in office (Figure 2). Alternatively, the US dollar could find a floor if US policy uncertainty subsides. Structurally, the gradual reduction of the US dollar’s share of global reserves would be consistent with its anticipated decline in the share of global trade.
For African economies, a weaker dollar could lead to counterpart appreciations, potentially mitigating some inflationary pressures in some countries (particularly the larger importers of US energy that include Ghana, Nigeria, Angola and Egypt) and prompting a re-evaluation of debt burdens and debt service payments in others. This could alleviate some of the pressures faced by the largest holders of US denominated public external debt – including, once again, Egypt, Ghana, Angola and Kenya and South Africa.
Additionally, the decline in US short-term and long-term yields may result in some regional borrowing costs edging lower and remaining lower than otherwise would have been the case, which could also spur cross-border lending and investment growth in the fastest growing economies with strong economic fundamentals (including Ethiopia, Kenya, Tanzania and Cote d’Ivoire).
Figure 2. The US dollar during Trump Presidencies (Nominal broad index)
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Image license:Source: US Federal Reserve, ODI Global; In both series, the US dollar is Indexed to the start of each Trump presidential term.
A distinguishing feature of the recent shift in global risk sentiment is its US-centric nature. The global economy and the global financial system are at a crossroads. This period is likely to mark the beginning of heightened financial uncertainty and a moderation of the US dollar and US dollar-based assets. While lower US rates and a weaker US dollar may not necessarily pose a negative shock to African economies, US policy uncertainty and a reduction in US investment flows are likely to present significant downside risks. Ultimately, African nations must remain vigilant and adapt to this evolving global landscape to capitalise on potential opportunities while mitigating potential threats.
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