Business / Economy
Introduction of bonds notes to reignite inflationary pressures, says BMI Research
16 May 2016 at 15:13hrs | Views
BMI Research, a Fitch Group Company sees inflationary pressures returning to the Zimbabwean economy before year-end 2016, on the back of an increase in the money supply as a result of the government's policy to introduce bond notes and the re-establishment of relations with multilateral lenders.
According to BMI Research's summary report on Zimbabwe Country Risk, the effects will be compounded by the ongoing drought across Southern Africa, driving up food prices, but the persistence of low fuel prices will help limit the extent to which inflation returns.
"We have revised our expectations for inflation on the back of a planned increase in the money supply through the printing of money and reestablishment of relations with multilateral lenders. We now expect inflation to reach 1.0% after two years of deflationary conditions," the report says.
BMI Research says Real GDP growth will improve slightly in 2016, as gold production increases on the back of stronger prices.
"That being said, poor weather will continue to weigh on economic activity and crop production and electricity generation, keeping growth low at 1.1%."
The Research Group says further progress in Zimbabwe's efforts to re-establish itself with international lenders will be largely dependent on political considerations, as the expected increase in political instability associated with President Robert Mugabe's succession will encourage populist measures.
It however says, a slow recovery in commodity prices will offer a strong incentive for the government to rein in spending.
The report says severe drought across much of Southern Africa following the onset of El Nino will ensure Zimbabwe's current account deficit remains deep despite a severe shortage of dollars in the first half of the 2016.
According to BMI Research's summary report on Zimbabwe Country Risk, the effects will be compounded by the ongoing drought across Southern Africa, driving up food prices, but the persistence of low fuel prices will help limit the extent to which inflation returns.
"We have revised our expectations for inflation on the back of a planned increase in the money supply through the printing of money and reestablishment of relations with multilateral lenders. We now expect inflation to reach 1.0% after two years of deflationary conditions," the report says.
BMI Research says Real GDP growth will improve slightly in 2016, as gold production increases on the back of stronger prices.
"That being said, poor weather will continue to weigh on economic activity and crop production and electricity generation, keeping growth low at 1.1%."
The Research Group says further progress in Zimbabwe's efforts to re-establish itself with international lenders will be largely dependent on political considerations, as the expected increase in political instability associated with President Robert Mugabe's succession will encourage populist measures.
It however says, a slow recovery in commodity prices will offer a strong incentive for the government to rein in spending.
The report says severe drought across much of Southern Africa following the onset of El Nino will ensure Zimbabwe's current account deficit remains deep despite a severe shortage of dollars in the first half of the 2016.
Source - online
