HomeNewsZim real GDP to contract 15,5%: EIU

Zim real GDP to contract 15,5%: EIU


ZIMBABWE’S real gross domestic product (GDP) is seen contracting by 15,5% in 2020 as the foreign currency shortage, limited investment, company shutdowns, soaring inflation and lockdown measures to stem the spread of coronavirus continue to weigh down the economy, a country report by the Economist Intelligent Unit (EIU) has revealed.

By Melody Chikono

The British think-tank pointed out that the current drought would continue to undermine agricultural output and constrain energy production, which relies on hydropower while ageing coal plants would produce inadequate power.
It also forecast a further 4,9% fall in GDP in 2021, with the mining sector continuing to be hamstrung by the policy environment and extensive power cuts.

“Agricultural output will remain weak as the sector recovers from the drought and as low tobacco prices deter activity. In 2022-24, real GDP will rebound gradually, with growth averaging 4,5% a year as better weather conditions facilitate growth in agriculture and a resurgence in domestic hydropower production, allowing mining activity to pick up,” the report noted.

“Industrial sectors will register growth, albeit from a low base due to poor capacity utilisation, as monetary conditions improve later in the forecast period. Despite reformist rhetoric from the government, we expect limited progress in addressing structural bottlenecks and improving the poor business climate.”

However, the report observed that mining and energy sectors were likely to continue to attract some investment to boost capacity utilisation, predominantly from those connected to Zanu PF.

Investor appetite, according to the think-tank, is seen remaining weak in 2020-21 as global economic conditions deteriorate owing to the coronavirus, but is expected to pick up modestly thereafter, with many underdeveloped sites providing potential for investment.

On the other hand, the report said government revenue would decline as a percentage of GDP in 2020-21 as the economy contracts although it is expected to pick up in 2022-24 as economic activity increases steadily and some taxes are increased.

“Aid inflows will remain sizeable, given the mounting humanitarian emergency stemming from the economic crisis and exacerbated by the pandemic; the United Nations estimates that more than half the country faces food insecurity this year. Aid flows will bypass the government, going directly to non-governmental organisations and other local groups and, therefore, will not appear in the fiscal accounts,” the EIU said.

“Spending as a percentage of GDP will increase in 2020 as the government attempts to mitigate the economic crisis.”
This comes as the country is in hyperinflation, with the latest numbers from the Zimbabwe National Statistics Agency showing that the month-on-month inflation for June gained 1 653 percentage points to stand at 31,66%, while annualised inflation stood at 737,26%, compared to 785,55% the previous month.

Rapid inflation has been driven by huge growth in the money supply base as the Reserve Bank of Zimbabwe (RBZ) finances fiscal deficits, combined with sustained currency weakness (particularly on the parallel market), foreign-exchange shortages and the ongoing drought, which has reduced agricultural and hydropower production severely.

“We forecast that inflation will fall sharply in 2021 to 108,3% owing to moderation in the growth of the money supply base combined with a slowdown in currency depreciation. In 2022-24, we expect inflation to moderate further, to an annual average of 6,5%, as the RBZ’s quasi-financing activity ceases and domestic confidence in the currency is rebuilt gradually (facilitating a movement away from the preference for United States dollars),” the EIU said.

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