Economy to contract 3,1pc

Source: Economy to contract 3,1pc | eBusiness Weekly June 7, 2019

Economy to contract 3,1pc
The IMF projects Zimbabwe’s real GDP growth to be a negative 2,1 percent in 2019, as the significant consolidation and the impact of the drought and the cyclone drag down economic activity. A rebound in economic activity is expected in 2020 and over the medium term, as uncertainty declines, distortions from multiple exchange rates are removed, and relations with external creditors normalise

Business Writer
The country’s economy is expected to contract 3,1 percent this year as activities remain subdued due to rising inflation and crippling foreign currency shortages, according to the World Bank.

The world’s multilateral lending institution in its semi-annual Global Economic Prospects report released this week, also alluded that the devastating tropical Cyclone Idai that swept across Manicaland and Masvingo provinces dented growth prospects.

However, the international bank projects a dramatic economic rebound, reaching 3,5 percent in 2020 and 4,9 in 2021 on the back of improved political and economic reforms that are likely to usher in stability.

Said the World Bank: “Output in Zimbabwe is expected to contract in 2019 with a sharp rise in inflation reducing real incomes and foreign exchange shortages constraining activity.”

The country’s last inflation figures for April 2019 showed inflation at 75,8 percent and is expected to remain elevated till October 2019 when authorities expect it to subside. Foreign currency availability has also been very limited forcing some businesses to stop or cut down on production.

The global lender also noted that the country had faced severe strain after experiencing devastating tropical cyclone Idai which took a heavy human toll and caused severe economic damage.

However, on the back of Zimbabwe and the European Union (EU) this week launching a formal political dialogue process based on Article 8 of the Cotonou Partnership Agreement which governs relations between member states of the African-Carribean-Pacific regions and the EU, the world body expects the situation to improve.

Zimbabwe and the European bloc have endured under-warm relations in the past two decades and the dialogue opens a fresh page that will have major geopolitical implications and benefits for Zimbabwe, whose international relations soured domestic prospects for growth economically and socially.

The World Bank, however, believes reconstruction efforts in the cyclone-affected areas are expected to support economic activity over the next two years. To date, Government says it had to deploy just above $100 million unbudgeted for expenditure towards alleviating the plight of the affected people. Local private and international organisations have also extended a hand in relief and reconstruction efforts. The World Bank still projects the country’s economy to recover in the forecast horizon, projections also shared by another multilateral lender, the IMF.

Despite projecting 2019 GDP to contract by 2,1 percent, the IMF said a “rebound in economic activity is expected in 2020 and over the medium term as uncertainty declines, distortions from multiple exchange rates are removed, and relations with external creditors normalise.”

The latest projections on Zimbabwe come at a time the World Bank is also saying recovery in Sub-Saharan Africa has lost momentum, reflecting subdued activity in Angola, Nigeria, and South Africa — the region’s largest economies.

However, going forward, the recovery in the region is projected to strengthen moderately, as oil production improves in Angola and Nigeria and investor confidence firms in South Africa.

Growth in the region is projected at 2.9 percent this year, up from 2,5 percent in 2018, but half a percentage point lower than previously forecast, reflecting more pronounced domestic headwinds and weaker-than-expected external demand. This translates into per capita growth of a mere 0,2 percent for 2019, following three consecutive years of contraction.

A return to El Niño conditions in 2019 could weigh on agricultural production.

Internationally, the World Bank lowered its global growth forecast for 2019 to 2,6 percent, while maintaining its growth projection for China at 6,2 percent.

“Heightened policy uncertainty, including a recent re-escalation of trade tensions between major economies, has been accompanied by a deceleration in global investment and a decline in confidence,” the report said.

Global gross domestic product (GDP) growth in 2019 was downgraded to a “weaker-than-expected” 2,6 percent, 0,3 percentage point below previous estimate in January, the report said. Global growth is projected to inch up to 2,7 percent in 2020.