Projected 6pc GDP growth unattainable
The Wholesale & Retail Trade sector consolidated its position as the biggest contributor to the country’s GDP in the first quarter of the year, despite the suffering decreases in all distributive trade indices during the same period.
The Ministry of Finance and Economic Development has projected a 6 percent Gross Domestic Product (GDP) growth for the year 2023 based on improved rains, but economists and analysts have cast doubt on the figure due to rising inflation and devastating power challenges.
Month-on-month inflation in June shot up to 74,5 percent from 15,7 percent in May, while the year-on-year inflation rate for June 2023, jumped to 175,8 percent from 86,5 percent in May.
In the first half of the year, energy production was subdued due to low water levels at Kariba and consistent machinery breakdown at Hwange Thermal Power Station, which led to heavy loadshedding of up to 20 hours. It is against these issues that economists and analysts have argued that a 6 percent GDP growth rate might not be attainable.
Economist Professor Tony Hawkins, said the projections by Treasury were way off the mark if we are to consider the current fundamentals on the ground.
“Such projections are unreasonable and they are being driven by elections coming in a few weeks, because if we look at what has happened in the first half of the year, there is nothing that points to such a high growth rate,” Hawkins said.
In its latest weekly report, Zimnat Asset Management noted; “The Reserve Bank of Zimbabwe (RBZ) has projected the end-period blended annual inflation for 2023 to be between 10-30 percent, which seems to be highly unattainable considering the turbulence being experienced at the moment.
“As such, this paves way to the potential decline in economic growth and the production levels of local companies. The increase in the rate of inflation points to the impact of the depreciating exchange rate, which has seen the Zimbabwean dollar losing at least 600 percent of its value since January 2023 on the official market.”
In its 2023 first half review, FBC Securities noted that the country will find it extremely difficult to attain the projected growth rate.
The research team said; “While local authorities maintain a more optimistic outlook for the country’s GDP growth this year, expecting growth of around 6 percent as opposed to an initial 3,8 percent projection, existing global and local economic complexities point us to a more conservative outlook for the local economy.”
Economist Dr Prosper Chitambara, believes the growth target has been hit by many shocks in the first half but might come in higher than the IMF projected figure.
“The growth target is too high and not attainable due to the power, inflation and currency shocks that hit the economy in the past six months. But with the current power situation and the expected harvests, we will most likely get the initial 3,8 percent growth projection,” he said.
Analysts have argued that the rapid depreciation of the local currency will not help the cause for such a high growth rate for the economy as it devalues savings, purchasing power, erodes value and fuels inflation.
“Destabilisation of the local currency and persistent inflationary pressures remain pertinent. Following a period of relative stability, pursuant to stabilisation measures implemented in the second half of last year, official blended inflation figures spiked in May and June.
‘‘The local currency has also faced increasing pressure, particularly in the last months of the first half, losing 739 percent and 742 percent of its value against the US dollar on the official and parallel market, respectively, between December 2022 and June 2023,” FBC Securities added.
According to Chitambara, the currency issue is the biggest factor in terms of our growth projections as it ends up leading to the monetary authorities missing their inflation projections.
Analysts and economists have agreed that the country’s GDP projections are wide off the mark considering the first half of the year and the prospects going forward despite improvements in the past three weeks.
“Despite relative improvement in power supply experienced in recent weeks and the prospect of a favourable agricultural season, the economy remains vulnerable to shocks stemming from high inflation, exchange rate volatility as well as an uncertain global economic outlook that are likely to moderate growth this year,” FBC Securities concluded.
After coming out of the devastating Covid-19 effects, the global economy and mainly African countries were struck by the effects of the Russian-Ukraine conflict that also distrusted global economic value chains.-ebusinessweekly
