Agribank economist Joseph Mverecha told a post-2014 National Budget seminar that Zimbabwe continues to experience slowdown in economic activity across all sectors of the economy.
“There is visible deterioration of economic fundamentals and economic stress signals in the country evident through; the worsening Current Account balance and deterioration in the balance of payments, low aggregate domestic demand, revenue underperformance, worsening capacity utilization levels, de-industrialisation, company closures and increasing joblessness, shrinking deposits in the economy”
Mverecha added that now that the country was beyond elections, the new Government must move quickly to address both near term uncertainties and Medium/Long term structural challenges
The major capital constraint in industry was working capital at 40.8% while low local demand, competition from imports, antiquated machinery and high cost of doing business in Zim were other constraints.
In terms of credit lines, Mverecha said from January to 31 October 2013, lines of credit approved through the External Loans Coordinating Committee (ELCC) amounted to US$2.6 billion, out of which US$1.2 billion was disbursed to various sectors, with the bulk of the funds going towards the financial sector followed by the agriculture.
Mverecha said aggregate demand will remain weak reflecting declining private consumption due to squeezed disposable incomes. “2014 aggregate demand will trend further down reflecting low incomes and liquidity challenges. This is consistent with widening deflationary conditions. Coupled with widening current account balances and tighter liquidity, the economy is set for a hard landing in 2014.”
Mverecha said: “on current Month on Month trends (0% per month); full scale deflationary conditions will set in by February 2014. This will be characterized by negative year on year inflation with as inflation much as -0.8% by March/April 2014. Year on Year Technical effects may cause inflation to inch towards 0% by July 2014.”
Mverecha said history has shown it that it is difficult to come out of deflation. Its effects to an economy include increases banking sector vulnerabilities, effects on creditors and debtors. During deflation, the prices fall and the value of money rises, as a result, the creditors tend to gain and the debtors tend to lose.
He said one of the things government could do to cure deflation was to attract new capital required to increase domestic production and aggregate demand to get the economy out f the quagmire of deflation.Post published in: Business