Is Zim headed towards a technical recession?
LAYOFFS have been increasing among Zimbabwe's regional partners after a year of sluggish development and falling stock prices. Zimbabwean organisations are starting to do the same.
When this article was written, e Zimbabwe Stock Exchange's nominal growth for the year-to-date (YTD) period ending 15/11 in 2022 was 28,79%.
e real growth was, however, restrained by 268,8% year-over-year inflation. e All-Shares Index rose by 370% (YTD) in the comparable period of the previous year, but inflation was lower at 58,4%.
e All-Share Index (ASI) decreased by 78% in USD terms. Is this sufficient proof that Zimbabwe is about to enter a technical recession?
e International Monetary Fund reported that Zimbabwe's economy contracted by 6,1% in 2019 and 5,3% in 2020. According to the most recent Global Economic Prospects report from the World Bank, the nation's GDP will continue to grow, reaching 4,3% this year and 4,2% in 2023.
We can observe that this pattern is causing the annual GDP figures to decline. When compared to other worldwide trends that suggest an imminent recession, particularly the declining price of copper (a protracted decline in copper prices typically signals one is on the horizon), this cannot be disregarded at all.
What is a technical recession?
A technical recession occurs when the economy contracts for two consecutive quarters, meaning that things are bad. Gross Domestic Product (GDP), which is the market worth of all the finished goods and services a country produces in a year, is the phrase used to describe the expansion of an economy.
According to the organisation, Zimbabwe statistics does not now compute quarterly GDP data, but by the next year, this will be a possibility. However, the yearly GDP figures are the only ones we can use for this analysis.
When an economy suffers two consecutive quarters of negative economic performance. It refers to shrinking economic output, sometimes also known as negative economic growth or economic decline.
In short, it implies that the economic activity of a country is declining. is is never a good thing. In Zimbabwe’s case, it is particularly serious because the country needs strong economic growth to make inroads into unemployment, which currently is affecting the youth.
Zimbabwe desperately needs a strong economy for other reasons too. e first is that the living standards of its citizens cannot improve without economic growth.
e second is that the economy needs to grow for the government to be able to increase revenue to meet its growing budget as 2023 approaches and the budget needs to be updated.
Although the technical definition of a recession is commonly recognised, there are alternative ways to characterise one. ere are further meanings as well, such as "an economy operating below potential" or "an increase in the output gap."
As a side point, it is noteworthy to note that while a depression lacks a common definition, a recession has a technical meaning (as in the Great Depression of the 1930s). Up to the Covid-19 era, when it contracted, Zimbabwe's economy saw sporadic positive development. Zimbabwe will avoid a recession for the calendar year 2022 if the economy continues to grow this year.
What causes it?
Construction, manufacturing, and transportation are just a few of the many industries whose economic activity decreased. In addition to retail, mining and agriculture also contributed favourably to output growth. Most industries have decreased.
is reflects weak demand across the board in Zimbabwe's economy. e crucial question is whether there will be a rebound in economic growth or whether there will be a recession going into 2023 (which is almost certainly an election year).
Who’s to blame?
It is challenging to assign blame. Recessions, however, should be emphasised as unusual occurrences because economic expansion is typically the goal of policy.
By the year 2023, there could be another recession, following the one that occurred in 2008. Investment, which in turn depends on confidence and optimistic future hopes for the nation, is necessary for rapid economic expansion.
e numbers for current FDI have been muted and do not inspire confidence. is helps to explain the lack of investment. Zimbabwe is becoming less appealing as a location for investment due to this and the sanctions.
How do we get out of it?
Investment is necessary to lift Zimbabwe's struggling economy out of its current state. If policymakers take no action, Zimbabwe will join a growing list of nations that will enter a technical recession. It is important to keep in mind that a country's status can change from quarter to quarter depending on its growth rate.
e investment will increase demand in the economy and have positive spillover effects in some sectors. is means that the most recent statistics must be used to determine whether the economy is growing or in a recession.
However, because quarterly data is not available, we are using annual data instead
Case of the UK
e Bank of England has issued a warning that the UK may be in for its longest recession since records have been kept. At the height of the coronavirus outbreak in 2020, the UK experienced its most recent recession.
According to the most recent data from the Office for National Statistics, the UK economy contracted by 0,2% in the three months between July and September.
e UK will formally be in a recession if the economy contracts once more in the ensuing three-month period ending in December.
e Bank of England asserts that it anticipates that to occur. In 2023 and the first part of 2024, the UK "is likely to be in recession for a considerable period," according to the report.
e Bank of England attributes the UK's economic woes to extremely rapid price increases, particularly for food and energy.
After accounting for growing prices, people's incomes are declining. e rate of price growth, or inflation, increased to 10,1% in September.
According to the Bank, in two years, inflation will "reduce sharply to some distance below the 2% target, and further below the target in three years."
Why does a recession matter?
Economic growth is often regarded as desirable. ere are typically more jobs as a result. Companies are more profitable, allowing them to increase shareholder and employee dividends.
In addition to increasing wages and profits, an expanding economy also increases tax revenue for the government. It can either increase spending on benefits, public services, and the salaries of government employees, or it can lower taxes. All of these things reverse as the economy contracts.
Happenings around the world
According to the International Monetary Fund, other economies are also having difficulties (IMF). However, in terms of economic growth, the UK ranks last within the G7 group of advanced industrial countries.
According to the IMF, global economic activity is slowing down more swiftly than anticipated, and inflation rates are at their highest levels in many years. Energy and food prices have gone up as a result of Russia's war in Ukraine, which is partially to blame for this. e Covid epidemic is still having repercussions today.
How could a recession affect me?
e number of unemployed persons could increase and some jobs could be lost. It can be more difficult for graduates and school dropouts to land their first job.
Others might have a tougher time getting promoted or receiving pay raises large enough to keep up with price increases. However, not everyone in society feels the effects of a recession equally, and inequality may rise as a result. Benefit recipients and people with fixed incomes are more prone to experience hardship.
Conclusion
A condition known as "stagflation" occurs when the economy has growth challenges and excessive inflation, and it is particularly challenging to reverse.
e central bank, which is independent of the government, is typically anticipated to lower interest rates when a nation is experiencing a recession. e cost of borrowing money is reduced for both enterprises and consumers, which can increase expenditure and economic growth.
Gerald Macheka, an Equity Axis economist, says that Zimbabwe is experiencing the consequences of imported inflation brought on by the ravaging effects of Covid-19 lockdowns In China.
Even though the Zimbabwean Statistics Department does not reveal quarterly GDP data, Zimbabwe is significantly dependent on imports and regarding China the Russia-Ukraine conflict, he believes that if the Zimbabwean policymakers do not find a strategy to encourage economic development in the fourth quarter of the year, the country would experience a technical recession in 2023.