“Inflation, power shortages a threat to economic growth” – Newsday Zimbabwe

power outages

STOCKBROKING firm FBC Securities says restrictive factors such as the currency crisis, rising inflation, liquidity shortages, policy missteps and ongoing energy shortages will weigh heavily on the country’s economic growth prospects this year.

The government has lowered the growth forecast for 2022 to 4.6% from the original forecast of 5.5%, citing ongoing global and domestic inflationary pressures, global geopolitical tensions and the fallout from ongoing global warming and the COVID-19 pandemic.

The International Monetary Fund forecasts that Zimbabwe’s GDP will grow 3.6% this year, about half the level of 2021, on the back of slowing agriculture and energy production and rising macroeconomic instability, despite the recovery in mining and tourism.

In its third-quarter report, FBC Securities said the global economic outlook remains uncertain, hampered by rising inflation and the ongoing impact of geopolitical tensions. Most economies have raised interest rates to tame inflation.

The rapid rate hikes are expected to have an impact on economic growth this year and next, with a global recession looking more likely, it said.

“Locally, we believe positive domestic economic growth remains possible given positive developments in the mining and tourism sectors. However, growth could fall short of the 4.6 percent forecast due to restrictive factors such as the currency crisis, rising inflation, liquidity shortages, policy missteps and ongoing power outages,” the report said.

“We also note that the upward revision in interest rates, which raises the cost of borrowing, is a constraining factor for desired growth projections as it weighs on aggregate demand.

“We expect ongoing liquidity issues to create bearish sentiment in the market. We continue to believe the declining market offers buying opportunities at select meters that now appear undervalued, leading to notable upside potential.”

Despite challenges posed by liquidity constraints and global pressures, the investment firm believed the market continued to offer investment opportunities in listed counters with robust business models able to weather headwinds.

“Ahead of the holidays, slowing inflation combined with improving foreign currency availability is likely to boost business performance,” FBC Securities said.

Inflation started to slow following government intervention to contain inflation and market indiscipline. Inflation data is slightly down.

30.7% in June to 3.5% in September.

Annual inflation rose to 280.4% in September from 191.6% in June.

To ensure that the current disinflationary trend continues, the authorities have decided to maintain tight monetary policy, which should be underpinned by continued fiscal prudence and close monitoring of rewarding inflation.

FBC Securities said global inflation shocks stemming from geopolitical tensions, rising food and energy prices and supply chain disruptions posed downside risks to the country’s inflation outlook.

It said gold coins and the value-for-money process for all government suppliers and contractors would reduce excess real-time gross settlement liquidity in the economy and continue to weigh on aggregate demand ahead of the year-end.

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