LEADING economists this week reiterated worries over potentially dire implications of an El Niño induced drought, warning that weaker agricultural output could lead to a recession.
They spoke as Dr Sithembiso Nyoni, the Ministry of Industry and Commerce, held a crucial meeting with millers and retailers on Wednesday to map out how grain reserves would be managed, as threat of food shortages unsettled markets.
This was despite recent high rainfall across the country, following a disappointing start to the farming season. Crops and livestock had already been distressed before the onset of rains during the Christmas holiday.
Zimbabwe expects the economy to grow by 3,5% this year, slower than the 5,5% last year, but experts say the situation could worsen. In a Zimbabwe Independent poll, experts agreed that the biggest threat to economic growth would be El Niño, whose effects have also been felt in power generation and other sectors. But apart from the drought, a tougher tax regime announced in December, currency fragility and high interest rates would also have a huge say in the direction that the economy will take. Growth for 2023 is projected at 5,5%, but this figure is expected to decline to 3,5% this year, before climbing to 5% in 2025.
“In terms of achieving growth targets, I don’t think it is possible mainly because of factors like the El Niño effect and continuing economic problems at a time when tax rates have been increased and disposable incomes are coming down,” said Farai Mutambanengwe, a leading economic analyst.
“Looking at the mainstream economy, things are not looking positive. Manufacturing and retail may suffer,” he said.
Citing the expected drought, economist Tapiwa Mashakada, Zimbabwe’s Economic Development and Investment Promotion minister during the inclusive government between 2009 and 2013, said the highest growth the economy could achieve would be 3,4%.
“The growth forecast is a hard sell considering the poor rainy season which has been affected byEl Niño,” he said.
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“Agriculture is the mainstay of the economy. I think the minister has to downgrade the growth forecast to 3,4%.”
Most economists were also worried that high interest rates of 130% would affect growth as markets struggle to access funding. However, Mashakada said the central bank must maintain them at the current ranges to contain money supply.
“With regard to high interest rates, they are necessary to curb money supply growth and slow inflation. Too much liquidity in the economy has been driving up the parallel market rates. The rates must be maintained so that only solid companies can borrow, not those firms who borrow for speculative purposes to burn the money,” Mashakada said.
Mark & Associates Consulting Group, in a report titled “Zimbabwe 2024 Budget Review & Analysis” projected that the agricultural sector would slow down by 4,9%, with negative implications on GDP growth.
“Economic growth is expected to slow down to 3,5% in 2024, mainly owing to the anticipated impact of the El- Nino phenomenon being forecasted for the 2023/24 summer cropping season on agricultural output, and declining mineral commodity prices attributable to the global economic slowdown,” the report.
According to the World Bank, the mining industry's contribution to economic growth will be weakened due to the decline in demand for minerals worldwide. Maintaining the pace of economic reforms, such as those mentioned in the conversation on arrears clearance, will help to reduce inflation and ease pressure on the exchange rate, the World Bank added.
In December, the World Bank said the country’s economic outlook was moderating.
It said this reflected continued global headwinds, structural bottlenecks, weather-related shocks and price volatilities that have been affecting the economy.
The report also said the moderation was a result of exchange rate fragilities in Zimbabwe, where, the domestic unity depreciated by wide margins last year.
“The economy is projected to slow to 3,5% in 2024, as agricultural output is expected to suffer from depressed global growth especially from China (and) predicted erratic and below-average rainfall caused by the El Niño weather pattern,” the World Bank said.
“The weaker global demand for minerals will reduce the contribution of the mining sector to economic growth. The continued implementation of economic reforms, including those outlined in the arrears clearance dialogue, will serve to cool down inflation and relieve exchange rate pressures. Addressing price and exchange rate volatility and public debt arrears will be vital in supporting economic growth and job creation.
Rising exchange rate distortions and high inflation have misallocated resources to sectors and firms with low productivity and limited private investment. This has constrained economic growth and reduced the competitiveness of Zimbabwe’s firms,” the World Bank noted.
