Zimbabwe's GDP takes US$12bn knock

Zimbabwe's gross domestic product (GDP) has sharply fallen to US$35 billion in November, a staggering 25% decline from US$47 billion in April. The sharp contraction highlights the dire economic challenges faced by the country, including the impact of a severe drought, rapid currency devaluation, and instability in global commodities markets.

The drop in GDP was confirmed by the Zimbabwe Public Debt Management Office, which reported a loss of US$12 billion over just seven months. This came as a major shock, especially after President Emmerson Mnangagwa had declared in April that the country's GDP had surged by 194%, from US$16 billion in 2018 to US$47 billion. However, this earlier optimistic projection now appears disconnected from the current economic reality.

The sharp downturn aligns with a variety of economic setbacks. Zimbabwe Gold (ZiG), the country's new currency initiative, has experienced a disastrous slump, falling more than 40% since its market debut on April 5. The currency's crash has been driven by a combination of factors, including heavy devaluation and negative market sentiment, especially throughout the third quarter.

Minister of Finance, Economic Development, and Investment Promotion Mthuli Ncube attempted to offer a hopeful forecast, projecting that the GDP would rebound to US$38.2 billion in 2025. According to Ncube, private consumption would drive growth, particularly with a forecasted 6.6% increase in household spending. However, critics have expressed skepticism about these projections, citing persistent challenges such as inflation, dwindling consumer purchasing power, and the ongoing effects of the drought.

One of the main contributors to the GDP contraction has been the extreme drought, exacerbated by the El Niño weather pattern. Zimbabwe has faced one of its worst agricultural seasons in recent history, which has had a ripple effect on the economy, including food imports and rising agricultural costs. Economists warn that Ncube's projected growth in 2025 is overly optimistic, given the uncertainties around the agricultural season and the nation's vulnerability to climate change.

Trust Chikohora, a former president of the Comesa Business Council, noted that currency instability, particularly the devaluation of ZiG, had played a major role in the country's economic slump. "The exchange rate had a major impact, with the value of ZiG crashing from around US$1:ZiG14 to nearly US$1:ZiG30," Chikohora said. "There are also other factors, including the agricultural crisis, which makes the projected 2025 growth rate seem highly speculative."

In his November budget statement, Ncube revised down the 2023 GDP growth forecast from 5% to just 2%, with a projection of 6% growth in 2025. However, economists have largely dismissed these figures as unrealistic, pointing to the deep-rooted structural issues that continue to plague the economy. Chenayimoyo Mutambasere, an economist at the Centre for Economic Justice, criticized the inconsistency in growth projections, saying that the downward revision of growth targets signals overly ambitious budgeting.

"The revision from 5% to 2% growth indicates that the government's economic expectations were disconnected from the realities of the country's challenges," Mutambasere said. "This decline in investment, combined with a 200% increase in maize imports, exacerbates the economic problems."

The decline in GDP has been accompanied by a drop in business activity and consumer spending. Many businesses are grappling with bankruptcies, and capital flight remains a significant concern. The collapse of Zimbabwe's GDP mirrors the devastating economic decline of the 2000s, when the country's economy contracted by 50% over the course of a decade.

Stevenson Dhlamini, an economics lecturer at the National University of Science and Technology, emphasized that climate change-related disruptions had played a key role in the economic contraction. "The impact of the drought, combined with a global commodities shock, has pushed Zimbabwe's GDP into a tailspin," Dhlamini said. "The situation is aggravated by the economic problems faced by key sectors, including the platinum group of minerals."

As Zimbabwe faces another year of economic uncertainty, the outlook remains grim. The negative impacts of the drought, coupled with currency instability and a lack of investor confidence, suggest that the country's recovery efforts are unlikely to bear fruit without significant changes to economic policies and governance. The hope for a rebound in 2025 hinges on factors that remain outside the government's control, including the outcome of the agricultural season and global market conditions.

While Minister Ncube's optimistic forecast for 2025 remains, leading economists warn that the challenges facing Zimbabwe's economy are deep-rooted and may take years to resolve.