With the annual rate of inflation jumping to 21.5%, the month of January has really lived up to its expectations as a month of economic tribulations. The month of January has recorded one of the biggest contractions in private sector business activities, in four months. For the past months, only PMI for September, at 46.6 was worse.
At 47.7 the month of January 2021 PMI shows the sharpest contraction from the previous months of slight improvements. From the 49.0 recorded in December 2020, this is a drop of 1.3. Private sector business activities have not been able to break the threshold of 50.0 since 2019. In other words, the private sector business activities have been contracting since 2019.
Trading economics notes that the Stanbic Bank Zambia Composite PMI, has dropped this much due to declines in both output and new orders at a very high-paced rate. The reduced output can mainly be attributed to the new Covid variant that was first recorded in South Africa, and reached Zambia in January. Cases have skyrocketed in Zambia since then, with an average 12% positivity rate.
Companies kept on reducing their staffing levels mainly due to the losses they incurred in the year 2020, which have adversely affected their financial standing. Most companies now seem to be short on funds to pay workers (Markit 2021), thus, as a way of reducing cost, they continue to lay off workers. The Kwacha, which is now trading above K21/US$, contributed to the cost of inputs although information from Markit economics shows that the currency depreciation impact has not been very severe.
It is very likely that the Central Bank is watching this trend, which can be traced from the month of December 2020, and there is certainly going to be a response in their monetary policy rate, which is scheduled to be announced this month of February 2021. Economic players are patiently watching and they will definitely react to the Bank of Zambia’s anticipated policy rate adjustments.