IMF revises Zim growth upwards to 2%
HARARE – The International Monetary Fund (IMF) continues to be bullish on the 2017 global growth and has marginally reviewed world output projections upwards from the 3.1 percent announced in its October 2016 outlook to 3.5 percent. In its April World Economic Outlook released today, the IMF says growth will be anchored by buoyant financial markets and long awaited cyclical recovery in manufacturing and trade under way.
“Conditions in commodity exporters experiencing macroeconomic strains are gradually expected to improve, supported by the partial recovery in commodity prices, while growth is projected to remain strong in China and many other commodity importers”, says the outlook. China’s growth projections have been slightly lifted to 6.6 percent.
The Fund also increased Zimbabwe’s real gross domestic product projections from the -2.5 percent it forecast in its October 2016 outlook to 2 percent. The World Bank’s Global Economic Prospects report released in January however forecast that the Zimbabwean economy will grow by 3.8 percent. In March, government also reviewed 2017 growth from the 1.7 percent initially announced in the 2017 National Budget to 3.7 percent, following a better than expected agricultural season and firming metal prices.
The outlook says metal prices have been firming, supported by higher real estate investment and capacity reduction efforts in China and the anticipated fiscal policy easing in the United States.
Zimbabwe’s inflation, which last month surged to 0.21 percent, is expected by the Fund to close the year at 5 percent, which will be the highest annual average since dollarization. Since 2009, inflation has hitherto recorded the highest an annual average of 3.7 percent in 2012 and a lowest of -2.4 percent in 2015. The outlook also says that Zimbabwe will experience a current account balance of -0.7 percent of GDP this year and -2.2 percent in 2018. According to the report, Zimbabwe registered its major economic reversal periods in the years 1974, 1983 and 2001.
It also projected the London Interbank Offer Rate on US dollar deposits to increase from 1.1 percent recorded last year to 1.7 percent this year and 2.8 percent in 2018. This, coupled with a projected 28.9 percent increase in the price of oil, is likely to pose challenges to the cost of doing business in the country. Between August 2016 and February 2017, oil prices increased by 20 percent, partly driven by the agreement by the Organisation of Petroleum Exporting Countries and other producers to cut oil production.
Meanwhile, most regional peers are expected to register growth rates above the Sub-Saharan average of 2.6 percent. Botswana is projected to grow by 4.1 percent, Malawi 4.5 percent and Zambia 3.5 percent. However, South Africa, which is Zimbabwe’s biggest export market, is projected to register a modest growth of 0.8 percent, with unemployment rising to 27.4 percent. This implies that Zimbabwe has to diversify its export markets in order to increase its export quantities and values.
“While there is a chance growth will exceed expectations in the near term, significant downside risks continue to cloud the medium-term outlook… one salient threat is a turn toward protectionism, leading to trade warfare”, said IMF economic counsellor, Maurice Obstfeld, in the report. Zimbabwe, for instance, has been having problems with neighbouring countries such as South Africa and Zambia, after imposing import controls last year.
The outlook recommended governments to follow trade policies consistent with maximum productivity, supplementing those with other policies that better distribute the gains from foreign trade internally, improve the skills and adaptability of their workforces and smooth the process of adjustment for those adversely affected by the need for economic reallocation. This comes as Zimbabwe is planning to launch its trade and industrial policies soon.
“Unfortunately, governments often find it harder to make such domestic improvements than to restrict trade. But they need to be aware that the gains that such an approach may yield for some at home come at the expense of others in the domestic economy in addition to foreign trade partners”, said the report.
“Even the sectoral gains from curbing cross-order economic integration disappear, and losses worsen, when trade partners retaliate in kind”, it added.