GDP growth remains weak, but to recover in 2017 on strong tobacco harvests: BMI report
HARARE – Research Company, BMI says persistence of Zimbabwe liquidity crisis will see real GDP growth remain weak over the next two years, after contracting for the second consecutive year in 2016 with a recession of 2.2% in 2016 and growth of 1.2% in 2017 being projected.
In a country’s risk report, the company says stronger tobacco harvests will see the beginning of a recovery in 2017, but high levels of political risk will ensure the tailwind impact on growth is neutralised.
”The Zimbabwean government’s fiscal position will remain under intense pressure as recessionary economic conditions continue to constrain revenues. While increasing exports will offer a boost to government tax intakes in 2017, this will be insufficient to clear all outstanding arrears with multilateral creditors, keeping the door shut on an important line of concessional credit.,” said BMI.
Long-term macroeconomic forecasts according to BMI will see the country’s nominal GDP increasing to 14.8% in 2017 from 14.5% in 2016 while it’s expected to plummet to 30.2% by 2025 real GDP growth is expected to grow from -2.2% in 2016 to 0.6% in 2017 and 5.8% by 2025.
Zimbabwe’s liquidity shortage is expected to worsen over the next two years as US dollars continue to flow out of the economy at a faster rate than they flow in. According to BMI the net outflow of capital is also expected to decelerate by H217 as the performance of key export industries begins to improve, a lack of confidence in the country’s economic and political outlook will ensure investors continue to move their capital abroad.
Prices are also expected continue to decline over the coming quarters in the country as outflows of dollars continue to constrain the money supply and government’s efforts to increase levels of liquidity and money in circulation are expected to fail.
BMI further notes that premature abandonment of the foreign currency regime will likely have a negative impact on the economy. People have viewed the introduction of bonds notes as Zimbabwe adopting its own currency and abandoning the multi currency regime.
Key country risks besides this are the issue of the president’s succession and climate change.“The succession of President Robert Mugabe risks turning violent if plans are not put in place and set in motion prior to his departure, as competing vested interests struggle to fill the power vacuum left in his wake. The weather is also a major risk. The country has seen several droughts over the last two decades which have had a devastating impact on the important agricultural sector and there is always a risk of a recurrence of poor rains,” said BMI.
BMI further indicates that Zimbabwe faces a highly unstable political outlook over the next 10 years, with the succession of President Robert Mugabe a near certainty and very little in the way of plans to replace him.
“The lack of any meaningful democratic tradition and an historical legacy of apartheid will present significant headwinds to stability for any new regime, keeping investors on the sidelines long into the country future,” said BMI.