Industry forecasts better Q2 prospects

Industry expects capacity utilisation to improve to 56 percent in the second quarter of the year, an improvement from 47 percent in the first quarter, but still lower than the previous year-end projection.

If capacity utilisation closes the year at 56 percent, then it would have missed the previous end of 2021 forecast of 61 percent projected in the Confederation of Zimbabwe Industries’ (CZI) Manufacturing Sector Report of 2020.

Last year’s capacity utilisation was estimated to be at 47 percent as well.

Over 86 percent of the respondents to a survey conducted by the CZI forecast that the economic situation in the country will be better or will remain the same for the rest of the year.

In its latest Quarterly Business and Economic Intelligence Report, CZI said projections and outlook are mainly positive based on expectations that stability will be sustained and inflation will continue downwards.

Annual inflation has fallen from a peak of 837 percent in July last year to 106 percent at the last count in June this year.

In its latest forecast, the Reserve Bank of Zimbabwe’s Monetary Policy Committee is now expecting inflation to close the year at 25 percent.

The central bank had previously projected annual inflation to close the year lower than 10 percent.

The month of June 2021 saw a resurgence in inflation pressures with month-on-month inflation ticking up to 3,88 percent gaining 1,34 percentage points on the May 2021 rate of 2,54 percent.

Blended inflation, which combines price changes of goods and services in both the US dollar and the local dollar increased to 4,49 percent in June 2021 from 1,8 percent in May 2021.

“Industry expects capacity utilisation to improve to 56 percent in the second quarter on the back of continued macroeconomic stability, low inflation, stable exchange rate and availability of agro raw materials from the good agriculture season.”

Provision of essential economic enablers such as electricity and water is also expected to play a key role in boosting capacity utilisation.

The Industry representative body, however, said although business is bullish about the second quarter, it remains alive to the risks that may unsettle the stability at the back of which the current recovery is premised.

“The challenges may provide a lifeline to undesirable arbitrage opportunities in the economy, which can undermine the gains achieved so far,” reads part of the Report.

In the first quarter business performance was hampered by Covid-19 induced economic lockdowns in January and February 2021 as well as delays in settlements of bids at the foreign exchange auction market.

Ironically, as we begin the second half of the year, business has once again been hit by tight Level Four national lockdown.

On Tuesday this week, President Mnangagwa announced lockdown measures which will run for a duration of two weeks and will be reviewed thereafter.

Commerce and industry are to open from 08:00 to 1530 hours, in compliance with a general curfew running from 1830 hours to 0600 hours.

The restrictions will see industry being asked to de-congest workplaces to 40 percent of manning levels, with the rest of the workers working from home.

While commercial transport is to remain operational to allow the economy to continue to run, the overall impact will be negative on business as it was in January.

Threats to business are also expected to come from delays in settlement of bids from the auction market.

CZI says the delays are threatening operations and stability.

The industry representative body also believes that the auction-rate is not market-based as reflected in the widening parallel market premium (more than 40 percent).

A total of 85 manufacturing companies participated in the survey
undertaken by CZI about business views on the performance of the economy in Q1 of 2021 and its forecasts for Q2 of
2021.

The results show that the average figures are facing up while at the same time, it is a mixed bag of performance with capacities ranging from 32 percent all the way up to 85 percent in the first quarter, reads part of the Survey Report.-ebusinessweekly.c.zw