Economy stalled, no recovery prospect

via Economy stalled, no recovery prospect – NewZimbabwe 03/08/2015

THE government’s revised economic growth of 1,5 percent for the year is too ambitious and shows that the economy has stalled, with no immediate prospects for recovery,  a local investment advisory firm has said.

Finance minister Patrick Chinamasa last week lowered economic growth projections to 1,5 percent from the initial 3,2 percent citing a drought that lowered agriculture output by 8,2 percent, but said tourism is seen growing by five percent, mining by 3,5 pct on higher mineral output despite poor commodity prices.

Zimbabwe, which holds the second largest reserves of platinum, recorded a 6.4 percent decline in production to 5.9 tonnes during the first half of the year.

The country’s economy is suffering from chronic power shortages and lack of foreign investment, while companies are shedding workers as they struggle to pay salaries, aided by a July 17 Supreme Court ruling that lets them cut jobs on a three month notice period without the high retrenchment costs.

The World Bank has said the economy will grow by one percent, but Invictus is pessimistic and has predicted the country could slip into recession later this year after Chinamasa cut revenue estimates to $3,6 billion from $3,99 billion this year, highlighting the effects of the slowdown.

Government would also have to borrow $400 million to cover for the budget deficit from $125 million initially.

“We do not expect the economy to recover in the near term. The recently announced midterm fiscal policy statement confirmed our fears that the economy has stalled,” it said in its latest assessment of the economy.

Of Chinamasa’s projection, it said: “We believe that even this forecast is ambitious and expect growth to be negative this year (at -1 percent).”

The poor investor sentiment is reflected on the Zimbabwe Stock Exchange, where foreign participation fell from just under 60 percent in the third quarter of last year to 30 percent in the second half of the year. Turnover has shrunk from $126 million in to $67 million over the same period.

“There seems to be little appetite for Zimbabwe stocks at the moment. We expect both foreign participation and turnover to decline further till the end of the year unless something dramatic changes,” said Invictus.

Inflation, which stood at -2.80 percent in June, is likely to decline further and end the year around -5 percent due to tight liquidity, which is constraining consumer demand as well as the weakening of the South African rand, it said.