Global and Local Economy in Q1 2018

The first quarter of the year saw some rather interesting developments. An unthinkable trade war ensued following months of tense economic relations between China and America. The fallout from this will be felt months after as the spillover effect of sanctions in the technology patent space begin to take effect following the 7 year ban.

Overall, global economic activity continued to firm up in Q1 of 2018. Global output is estimated to have grown by 3.7% in 2017, which is 0.1% point faster than previously projected. In addition, growth in the Sub-Saharan Africa (SSA) region is projected to continue to rise to 3.2% in 2018 and to 3.5% in 2019, on the back of firming commodity prices and gradually strengthening of domestic demand. On the domestic front, Zambia’s economic environment was largely stable and GDP growth projections for 2018 remain on target, building on the 4.1% growth rate registered in 2017. The exchange rate of the Kwacha against major trading currencies remained stable while inflation is within the targeted 6 to 8% band margin.

Moody’s Investors Service upgraded the rating outlook for Zambia to stable from negative. According to a rating action statement issued in London attributed to them, the BBB rating stable outlook reflects reduced government liquidity pressures and a slowdown in government debt accumulation. However, the sustainability of this stability will only be determined by the outcome of Government’s negotiations with the IMF. A change in the guard at the Ministry of Finance was indicative of a fresh approach by Government with Hon. Margret Mwanakatwe taking over from Felix Mutati.

Despite concerns the country’s debt position, appetite for Government bonds was high during the quarter with an oversubscription by 4 times for the first issue in February indicative of continued crowding out of private sector. This will have a notable impact on industry’s ability to source cheap financing for expansion. A sample of a number of 2017 annual reports indicate liquidity concerns were ubiquitous in 2017 and this will be a concern for the Central Bank as it continued on its path of easing monitory policy.

The year on year inflation rate as measured by the all items Consumer Price Index (CPI) for March 2018 was at 7.1 percent. Marginal decreases have been recorded in interest rates that fell to 24.1 percent in March 2018 from 24.6 percent in December 2017, while Libor rate trend has continued with an upward slope from 1st Quarter 2017, from lows of 1.318 % in January 2017 to heights of 2.248 % in March 2018. Further, during the month of March 2018, the Kwacha appreciated by 2.1 percent against the dollar to an average of K9.5859/US$ relative to the February 2018 average of K9.7926/US$. In addition, the copper price trend has in the quarter 1 shown downward movement from heights of $7,107.82/tonne in January 2018 to $6,823.42/tonne in March 2018. Additionally, copper output has plunged over the same period.

With energy becoming a big concern for the region, fluctuations in commodity prices will be the determinant of earnings reports for energy and manufacturing companies in the first quarter of the year.

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