This is the view of BMI Research – a unit of the Fitch Group.
Zimbabwe’s economy will fall back into recession over 2018, hamstrung by the ongoing lack of hard currency.
While the appointment of a more reform-minded president will offer a boost to investor sentiment, this will not feed through into headline growth figures until 2019 when the country’s political outlook is more certain.
Although a substantial increase in crop yields will have supported positive real GDP growth over 2017, our Agribusiness team does not believe this is sustainable, given it was largely a result of positive base effects after a severe drought crippled harvests in 2016.
While the ouster of long-serving President Robert Mugabe and appointment of the more reform-minded President Emmerson Mnangagwa offers hope of more sustainable economic growth going forward, we do not expect any benefits to fully materialise until 2019.
Until they do, the lack of monetary liquidity in circulation will continue to weigh on economic activity, informing our forecast for the economy to contract by 1.5% in 2018, before growing by 3.0% the following year as foreign investment beg ins flowing into the cash-strapped economy.
Liquidity crisis will continue to undermine growth
The lack of monetary liquidity in Zimbabwe will continue to undermine prospects for economic growth over 2018.
Since dollarising the economy in 2009, a lack of inward investment has meant years of deep current account deficits have been financed with reserves of hard cash intended for day-to-day domestic transactions.
In this environment, businesses and consumers have found it increasingly difficult to access the hard currency needed to buy goods and services , particularly those imported from abroad, weighing on economic activity.
Anecdotal evidence suggests the liquidity crisis of Zimbabwe has already begun to ease somewhat since the military coup installed Emmerson Mnangagwa as president in mid-November.
So-called ‘bond notes’ introduced by the central bank at parity to the dollar as a form of legal tender to alleviate the lack of liquidity reportedly now trade at smaller dis count to hard cash than they did prior to the coup.
This is likely due to some combination of the country’s vast diaspora increasing remittances while those still living within the borders of Zimbabwe, are likely sending less hard currency abroad for safekeeping, both a reflection of increased confidence in the economic outlook.
However, without substantial inward investment or a sudden surge in exports, monetary liquidity is unlikely to return to levels needed to support more robust GDP growth.
While investor appetite is likely to have piqued in response to the appointment of a more reform-minded president, we do not believe this will be sufficient to attract significant foreign capital without some evidence that President Mnangagwa is delivering reforms.
Feature image credit: Wikimedia