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Global headwinds spell doom for Zimbabwe

by Staff reporter
20 Jan 2024 at 02:06hrs | Views
TOP international economists predict that the global economy will decline this year, spelling trouble for Zimbabwe's foreign market-dependent economy.

The Treasury expects Zimbabwe's economic growth to weaken to 3,5% this year from 5,5% last year due to uncertain global markets and climate change-induced inclement weather patterns.

The local economy largely relies on mining and agriculture, whose main markets and investment sources are foreign.

Mining and agriculture generate most of the government's revenue from exports.

According to the World Economic Forum (WEF)'s Chief Economists Outlook study, the global economy faces uncertainty this year.

"Uncertainty that dominated the outlook over the last year continues to cloud near-term economic developments: 56% of chief economists expect the global economy to weaken over the next year," reads part of the report.

"But, another 43% foresee unchanged or stronger conditions. While there are positive developments, such as easing inflationary pressures and advances in the field of artificial intelligence (AI), businesses and policy-makers face persistent headwinds and continued volatility as global economic activity remains slow, financial conditions remain tight and geopolitical rifts and social strains continue to grow."

The WEF analysis identified divergent development trends, with South and East Asia predicted to have the most economic activity.

However, China, one of Zimbabwe's key trading and investment partners, had moderate growth projections for 2024.

"In Europe, 77% expect weak or very weak growth in 2024. Elsewhere in the world, the expectations are for broadly moderate growth ... Expectations for growth have strengthened in Latin America and the Caribbean and SubSaharan Africa, with a slight uptick in the share of respondents expecting at least moderate growth to 70% and 65%, respectively."

The WEF's annual meetings that began on Monday ends today.

"The majority of respondents say it will stoke volatility in the global economy (87%) and in stock markets (80%). There appears to be equally strong consensus that recent geopolitical developments will increase localisation (86%) and strengthen geo-economic blocs (80%).

"Almost six out of ten (57%) also expect it to increase inequality and widen the NorthSouth divide in the next three years."

Even with moderate development, 36% of economists forecast high or very high inflation in Sub-Saharan Africa, including Zimbabwe.

Zimbabwe's annual inflation rate stood at 26,5% in December, driven mostly by the local currency depreciation.

The country's economy is unstable due to power outages, water shortages, falling disposable incomes, lack of foreign investment, climate change, political risks, debt, poor local capital, and low employment.

"As at 31 August 2023, about half of the countries covered by the IMF/World Bank Debt Sustainability Framework for low-income countries were assessed as being at high

risk of debt distress or in debt distress — an increase of about 70% from the 2015 level," the United Nations (UN) said in its new World Economic Situation and Prospects 2024 report.

"In total, 36 developing economies – home to about a quarter of the world's population living in extreme poverty – are plagued by severe debt problems and high borrowing costs. Among these economies, 11 are LLDCs (landlocked developing countries), with Lao People's Democratic Republic, Malawi, Zambia and Zimbabwe classified as being in debt distress by the IMF (International Monetary Fund) and the World Bank."

The UN said while most central banks in Africa were in a monetary tightening phase last year, those in Angola, Uganda and Zimbabwe were not.

The Treasury has since responded to the country's turmoil by introducing a slew of new taxes, levies, and fees that has shot the cost of living to unaffordable levels.

"The new taxes will result in an increase in the cost of goods and services so higher taxes mean higher prices and higher prices mean fewer real incomes or less disposable incomes. I think it's going to be a challenging year for consumers," economist Prosper Chitambara told businessdigest.

"And of course, for those who are formally employed they are going to fight vigorously for salary adjustments on the count of the loss of real incomes."

Veteran economist Tony Hawkins said government spending would rise to be much higher than what was forecasted as the authorities based 2024 National Budget on a low very inflation rate.

Source - businessdigest