Navigating the complex terrain of recent economic developments
The global economic landscape remains fraught with persistent challenges, both internal and external, casting shadows on its recovery and growth trajectory.
GEOPOLITICAL tensions between opposing ideological spectrums, such as the far left and far right, continue to disrupt international supply chains and impact production in conflict-ridden regions including Ukraine, Palestine, Myanmar and Sudan. Recent global war statistics underscore a spectrum of conflicts, from Myanmar’s enduring civil war to the ongoing drug war in Mexico, each presenting unique causes and consequences.
Notably, the Russia-Ukraine conflict, which commenced in 2022, epitomises the intricacies of modern warfare, introducing unforeseen resistance, strategic challenges and profound impacts on civilian populations.
In response to conflicts like those in Ukraine and Yemen, the international community adopts a multifaceted approach, involving humanitarian aid, economic sanctions and political actions. This underscores the complexity of contemporary geopolitics and the imperative to address conflicts on various fronts.
Despite concerted efforts to counteract decades of high inflation through unprecedented tightening of global monetary conditions, the result has been a deceleration in global growth, marked by increasing divergences. The world economy appears to be moving forward with a limp rather than a sprint, reflecting the complex challenges it faces.
In the significant year of 2024, elections are scheduled in 50 countries, involving over two billion voters. Geopolitical volatility emerges as a foremost identified risk, particularly pronounced in advanced economies compared to emerging and developing markets. Global growth is anticipated to reach 2,4 percent, down from an estimated 3,0 percent in 2023.
The rising “adversarial” trend in international economic relations poses risks for developing and emerging market economies, leading to higher business costs, trade restrictions, market instability, and policy swings.
Sub-Saharan African countries, with mixed fortunes in economic growth, confront challenges from extreme weather events, withdrawal of fiscal support amid high debt, high-interest rates, and depreciated currencies, placing many at high risk of distress.
As global growth is poised to slow further in 2024, policymakers confront enormous challenges, including an escalation of conflicts, financial stress, persistent inflation, weaker-than-expected activity in China, trade fragmentation, and climate-related disasters.
Investment in emerging markets and developing economies is likely to remain subdued, underscoring the importance of macroeconomic and structural policy actions and robust institutions to bolster long-term growth prospects.
Zimbabwe has emerged as the fastest-growing economy in Southern Africa since 2021, with its economy expanding by 6.5 percent in 2022, down from 8,5 percent in 2021. However, shocks such as supply chain disruptions, economic volatility, and power shortages have hindered Zimbabwe’s economy from reaching its full potential. While food insecurity rates have declined from their highs in 2020 and early 2021, poverty, vulnerability, and food insecurity rates remain elevated.
Various sectors including mining and quarrying, electricity, accommodation and food activities, ICTs, and the financial sector are expected to perform better in 2024. However, agriculture, mining, manufacturing, and infrastructure sectors remain the major contributors to economic output. The slow start to the 2023/24 agricultural season, coupled with an El Niño-induced drought, is anticipated to result in diminished agricultural production compared to the previous two seasons.
Nevertheless, increased spending on housing and other infrastructure projects has revitalized the construction sector, and with a greater emphasis on value addition, the manufacturing sector’s contribution to economic activity is expected to rise.
According to the 2023 ZNCC Annual State of Industry and Commerce Survey, capacity utilisation in most sectors increased, albeit at a slower rate compared to the previous year. Constraints such as lack of capital, power outages, costly Ease of Doing Business, corruption, and inadequate skills continue to hamper economic growth.
However, factors such as readily available markets, improved access to foreign currency, and the use of locally available raw materials have contributed to high capacity utilization levels in certain sectors.
Commodity-exporting emerging markets and developing economies face unique challenges amid fiscal policy procyclicality and volatility.
A well-designed fiscal framework, coupled with a robust institutional environment, becomes crucial to build buffers during commodity price booms that can be utilised during subsequent slumps. Prioritising responsible fiscal actions for sustainable growth and avoiding distortionary policies are paramount.
Thus, on fiscal policy, commodity-exporting countries like Zimbabwe can enhance economic resilience with a dash of wisdom from the Hippocratic principle in fiscal policy: “Do no harm, embrace non-maleficence”. That is, prioritise responsible fiscal actions for sustainable growth and avoid distortionary policies.
Global headline and core inflation have declined from their peaks in 2022, but inflation remains above target in most advanced economies and about half of inflation-targeting emerging markets and developing economies.
While monetary tightening in advanced economies is nearing its conclusion, real policy interest rates are expected to remain elevated for some time.
The recent conflict in the Middle East has had a muted impact on commodity prices, with most prices weakening in 2023 but remaining above pre-pandemic levels. Average oil prices in 2024 are projected to edge down with weakening global growth, while metal prices are expected to decline further due to slower growth in China.
Food prices are anticipated to soften amid ample supplies for major crops, but
are expected to remain elevated.
Looking ahead to 2024, expectations from the Zimbabwean business community are mixed, with a significant portion anticipating improvements in investment situation, profitability, and ease of doing business.
The Business Confidence Index (BCI) reflects a generally positive outlook for the upcoming year, indicating some confidence in the government’s macroeconomic stabilisation policies and the prospects of international and domestic economic recovery.
Given the fragile economic conditions, businesses should not waiver on cost control, implementing strict measures, streamlining operations, and negotiating favourable terms with suppliers to offset the impact of rising inflation.
Agile pricing strategies are crucial, necessitating regular review and adjustment to reflect changing costs and currency values. Market intelligence remains paramount, requiring businesses to stay informed about economic and political developments affecting local and global markets.
Legal and compliance considerations are vital, necessitating adherence to local regulations and tax laws with the engagement of legal and financial experts to navigate complex financial environments.
Adaptability is key, requiring businesses to maintain flexible strategies for quick adjustments to changing market conditions, particularly in hyperinflationary and volatile environments. Additionally, diversification strategies should be explored, including expansion into stable regional and continental markets to mitigate risks.
In summary, the global economic landscape is navigating through intricate challenges, necessitating coordinated efforts, strengthened cooperation, and strategic policy actions to ensure sustainable and inclusive growth.