Zimbabwe economy to contract by 10%

indafrica June 9, 2020
Updated 2020/06/09 at 12:40 PM

The World Bank projects a 10% contraction of Zimbabwe’s economy in 2020, a worse outcome against the forecast Sub-Saharan Africa contraction of 2.8%. The country’s economy is set to recover to a marginal of 2.9% from an initial projection of 2.4%.

According to the World Bank Global Economic Prospects report for June, Zimbabwe’s economy will now contract from an initial growth projection of 2.7%, which was made in January. The fall in per capita GDP is bound to be even deeper, likely causing the majority of the population to fall back into extreme poverty.

This comes as the average Zimbabwean is living below US$1 a day, a standard which is below the World Banks poverty marker of US$1.90 a day.

The wider continental bloc (SSA) is expected to contract by 2.8%, the sharpest contraction on record.

Growth in the region is expected to rebound to 3.1% in 2021; however, the outlook is subject to substantial uncertainty.

The projected pick-up assumes that the coronavirus pandemic will have faded by 2H 2020, that domestic outbreaks in the region follow a similar path, and that growth in major trading partners will rebound.

Commodity prices are also expected to recover but remain below 2019 levels.

Most countries including Zimbabwe have announced fiscal measures to support activity and buttress health sector responses to the pandemic.

However, given binding fiscal policy constraints, these measures have often involved reprioritisation of existing budgets.

To help alleviate funding shortfalls, international financial institutions have called on bilateral creditors to temporarily suspend debt payments from fiscally constrained low-income countries.

They have also made emergency support packages available to assist governments; however, given the scale of the pandemic, further external assistance from the broader global development community appears necessary.

In South Africa, activity is expected to contract by 7.1% this year—the deepest contraction in a century and 8% weaker than previously forecast—as stringent but necessary domestic containment measures, including an extended national lockdown, have severely disrupted activity.

Growth is expected to rebound in 2021, helped in part by the government’s announced 10%-of-GDP fiscal stimulus package to soften the impact of the pandemic and help set the stage for a robust recovery.

According to the World Bank, the recovery could gain further traction if planned structural reforms are implemented, including plans to improve public investment management and to encourage greater private-sector participation in infrastructure development.

However, prospects for faster growth over the medium term are likely to be constrained by needed fiscal tightening and will continue to be dampened by persistent power supply disruptions and the need for extensive maintenance and repair work on the national grid.

Elsewhere in the region, growth prospects have also been eroded.

Among commodity importers, activity is forecast to contract particularly sharply this year—despite the oil price collapse improving their terms of trade—as international travel restrictions weigh heavily on large tourism sectors in several of these economies (Cabo Verde, Mauritius, Seychelles).

Activity in industrial commodity exporters is also expected to contract notably in 2020, as domestic disruptions from the pandemic are compounded by low prices and demand for oil and metals (Angola, Democratic Republic of Congo, Gabon, Ghana, Namibia, Republic of Congo, Sudan).

With commodity prices projected to remain depressed, the recovery in these economies is expected to be sluggish. In Senegal, oil and gas production was projected to come on stream in 2022; however, these capacity enhancing investments have been delayed to at least 2023 amid pandemic-related disruptions.

Among agricultural commodity exporters, growth is projected to all but collapse this year, falling by roughly two-thirds, on average, from 2019 growth rates. Although exports of agricultural goods have suffered from the collapse in global demand, these economies are somewhat more insulated from the effects of sharply lower industrial commodity prices and demand. Of those countries in the highest quartile of growth in 2020, more than 80 percent are agricultural commodity exporters.

With the impact of the pandemic assumed to have faded by next year, the recovery in agricultural commodity exporters is expected to be underpinned by investment in infrastructure, greater export diversification, and continued implementation of reforms to improve business environments (Benin, Côte d’Ivoire, Ethiopia, Rwanda, Senegal, Togo).

However, an expected fall in foreign direct investment amid the global recession, as well as tighter financial conditions, could delay the delivery of infrastructure projects in these economies.

The financing of current account deficits has become more difficult this year, as heightened risk aversion has caused significant capital outflows and tighter financial conditions.

This is particularly challenging for countries dependent on portfolio inflows (Nigeria, South Africa), or official development assistance (Central African Republic, Malawi). Several countries also depend on remittance inflows, which are expected to slow markedly (Ghana, Kenya, Lesotho, Nigeria, Uganda).

If these conditions were to continue for a prolonged period, the lack of access to external financing could weigh heavily on foreign reserves, while those without adequate buffers could face a balance of payment stress.

There is also a risk that violence and social unrest may erupt as a result of the pandemic, weighing further on mitigation efforts and activity.

Critical peacekeeping missions in many countries may lose momentum if governments are forced to refocus their efforts toward the pandemic and its associated mitigation measures, which could create room for insurgencies to gain greater footholds in vulnerable areas.

Moreover, rising unemployment, falling incomes, and potential shortages of essential items such as food could likely lead to social unrest and instability in several countries that may continue to weigh on activity even after the pandemic has faded.

The global economy is expected to contract 5.2% —the deepest global recession in eight decades, despite unprecedented policy support.

Source – finx

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