A World Bank economic overview of Zimbabwe's future

A World Bank economic overview of Zimbabwe's future
Published: 05 September 2013
AS the new government takes office, the World Bank says the 2014 outlook for Zimbabwe's ailing economy is increasingly uncertain.

According to the World Bank's September economic briefing, the economy faces uncertainty both from expected volatility in the global economy and on the domestic front after the contested July 31 elections amidst worsening macroeconomic indicators and increased vulnerability of the banking sector.

Below are excepts of the outlook report:

As the US Federal Reserve Bank starts unwinding the recent expansionary monetary stance, emerging markets may face increased volatility due to expected capital outflows and possible volatility of international commodity prices.

Year 2013 global growth is expected to remain slow, at 2,2%, held back by rather weaker high-income countries growth (1,2%).

Although financial conditions in high-income countries have generally improved, growth in the Euro area remains subdued by the still weak confidence and continuing banking sector and fiscal consolidations.

Growth in developing countries is firming and expected to accelerate to 5,1% in 2013, largely supported by less volatile external environment, recovery of capital flows and relaxation of capacity constraints.

In Sub-Saharan Africa, strong domestic demand and strengthening global demand are expected to support the region's robust growth of 4,9%.

However, the region's growth prospects may be derailed by downside risks related to easing international commodity prices, overheating of some economies which are close to potential, adverse weather conditions and political unrest.

In South Africa, the rand has depreciated further by over 10% since April.

Commodity prices
Commodity prices have been easing in the first half of 2013 due to both increased supply and weaker demand.

Commodity prices are expected to continue easing over the short to medium term.

The expected increased volatility of commodity prices would affect Zimbabwe's export growth, worsening the current account deficit, shrinking fiscal revenues and upsetting the economic recovery process.

As Zimbabwe's external position has been supported by substantial short-term capital inflows, the situation would be compounded by the risk of capital outflows from emerging markets as the US Federal Reserve progressively unwinds its expansionary monetary policy.

Economic Performance
Growth in Zimbabwe is rapidly fading, and after 4,4% in 2012, the growth projections for 2013 have been revised downwards to 3%, with little prospects for a recovery in 2014. Growth performance has been stymied by continued slowdown of the key sectors of the economy, amidst easing of international commodity prices, low investment, tight credit conditions and policy uncertainty after the July elections.

Concerns over the new government's economic policies, including extensive implementation of indigenisation legislation, are bound to extend the "wait-and-see" attitude of both domestic and foreign investors that characterised the run-up to elections.

Agriculture's growth prospects have been revised downwards and the sector is expected to slightly contract (-,3%).

The performance of the 2013 season has been largely below initial projections, with a strong contraction in maize and cotton, dampened by adverse weather conditions, lower hectare planted and subdued yields.

The tobacco sector has been, on the contrary, supported by another strong performance in 2013.

Maize is predicted at 798 600 tonnes in 2013, declining by 17.5% from 2012 and falling 56% short of the national requirement of 1,8 million tonnes.

The traditionally resilient cotton sector, which traversed almost unscathed the tumultuous decade-long crisis, hit rock-bottom in 2013, with an estimated 108 832 tonnes compared with 350 000 tonnes in 2012 as many farmers switched over to other crops in response to the 2012 pricing impasse.

The manufacturing sector growth is projected at 1,5%, stunted by low investment, declining competitiveness amidst tight credit conditions.

Services sector will remain the biggest contributor to GDP, at 41%, growing at 3.1%

2014 Projections
The baseline projections forecast economic growth at 3% in 2014 as levels of investment remain below potential and economic agents adjust to uncertain economic directions.

Overall, risks remain tilted to the downside due to declining levels of exports as international prices of minerals ease.

There is also the risk of exacerbation of vulnerabilities in the banking sector, expected fiscal slippages, potential destabilising effects of hurried and disorderly implementation of indigenisation policy by the new government as well as precarious external position.

- newsday
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