Sluggish growth for Zimbabwe in 2022
FOR the year 2022, the RBZ estimated a GDP growth of 5,5 percent against the 2010-2020 average of 4,7 percent. This is against our forecast of a slowdown in real GDP growth to 3,08 percent in 2022.
We do not see output lost during the pandemic being recouped until 2025. This implies that Zimbabwe will not be able to close the economic development gap with historically-more developed regional peers, and that it will fall further behind peers in real GDP per capita terms in the coming years.
GDP in Zimbabwe averaged US$7,43 billion from 1960 until 2020, reaching an all-time high of US$20,55 billion in 2016 and a record low of US$1,05 billion in 1960. The graphs below show Zimbabwe's GDP figures and forecasts up to 2023.
We forecast Government spending to add approximately 1,1 percent to growth in 2022. This is much smaller than an average contribution of 2,3 percent registered between 2010 and 2020.
The budget for 2022 was approved in November 2021, with Finance and Economic Development Minister Mthuli Ncube suggesting that Zimbabwe was now targeting smaller fiscal deficits to restore investor confidence in the country.
The Government is targeting a deficit of 1,5 percent of GDP in 2022, which it is unlikely to hit given that it is based on the Government's overly optimistic growth forecast of 5,5 percent for the year.
Although Government spending will likely increase in the run-up to general elections planned for early 2023, Zimbabwe remains locked out of capital markets and central bank financing of the deficit will be constrained by the need to lower inflation further. The graph below shows GDP growth rates since 2016 and our forecasts for 2022 and 2023.
Economic outlook for Zimbabwe remains poor. Given GDP contractions of 6,14 percent in 2019 and 4,07 percent in 2020, this implies only a partial recovery. The growth estimate for 2021 was propped up by low base effects, strong mining output, and a robust agricultural harvest.
The economy will not benefit from these tailwinds in 2022. Furthermore, the robust agricultural harvest in 2021 only is not enough to stimulate demand.
Growth to be steady rather than spectacular. The main growth driver in 2022 will be private consumption, which we forecast will add 3,7 percent to growth. This is based on our expectation that restrictions aimed at tackling Covid-19 will remain largely absent from Q2 22 onwards, given rising vaccination rates (22,4 percent of the population were fully vaccinated as of February 7 2022) and the spread of the less deadly Omicron variant.
The slowdown in growth between 2019 and 2021 reflects greater structural issues such as trends in investment, employment, living standards and poverty that needs to be addressed.
That said, private consumption will still face headwinds. Credit demand will remain constrained by high borrowing costs.
The RBZ held the policy rate at 60,00 percent at its February 2022 meeting, and we only see the rate falling to 45,00 percent by end of 2022. Over 65,0 percent of the population is employed in agriculture, and a weaker harvest this year will weigh on incomes for those working in the sector.
The tobacco outlook is poor. A combination of erratic rainfall pattens in the 2021/2022 agricultural season, low prices and lower forex retention set by the government will be the major causes for concern.
However, strides have been made in terms of supporting farmers and also increasing auction floors and opening some close to the farmers in places like Mvurwi and Karoi.
Politics at the centre stage. The year 2022 will be a different year from the familiar routine of the 2020s. This is because of the 2023 Presidential elections which we believe stakes are high and the most damage will be felt in the economy.
Politics will have a strong impact on the economic direction of the country. As events are unfolding, it is clear each day that the only thing that remains stable is the instability.
Monetary policy inconsistency. The 2022 Monetary policy falls short in its drive to support the use of the local currency unit given that it completely ignores the informalisation rate of the Zimbabwean economy.
Monetary authorities clearly do not have the artillery to adequately police a burgeoning informal economy, a monster that we believe they created through financial repression. On another note, controlling money supply growth will be a mammoth task given several economic realities which are foreign currency shortages and the government's need to finance (i) agriculture/ farming inputs and (ii) energy imports (fuel and electricity) and lastly increased liquidity injections to fund various projects given the forthcoming 2023 elections. This huge demand is likely to push the parallel market exchange rates and will have a pass-through effect on pricing and inflation.
In the global capital markets, we expect forces such as inflation and increased corporate earnings that drove the equities market in the prior year to still be at play in the short to medium term. We recommend investors to be overweight in equities that are linked-to green technology, ICT, energy, and oil in developed markets. High debt levels in many countries heighten default risk in sovereign treasuries and bonds and we prefer inflation-indexed fixed-income instruments over plain vanilla bonds in most portfolios.
We are of the view that the Zimbabwean stock market will still serve as an avenue for preserving value in 2022. This is because the stock market has been able to effectively track the exchange rate movements. Stock picking will be of paramount importance since we expect the ZSE to record nominal gains. To add on to the above unlisted equity investments are also poised to yield better returns as the economy recovers.