Zambia’s economic activity deteriorated in March 2019 with the PMI dipping below the benchmark of 50 once again; largely due to decreased demand occasioned by tighter spending patterns of economic agents, according to ZANACO’s Treasury Unit March 2019 Monthly Economic Review and Outlook Report.
The gains of February 2019 in Purchasing Manager confidence were quickly erased when the March 2019 PMI report was published in the first week of April. Despite global economic activity strengthening in March on account of stronger performance in the services sector and continued improvement in commodity prices as trade talks between the US and China began to take shape, according to the Bank, a weaker PMI indicates weakening economic activity.
This has led to the revision of the growth predictions for the 2019 and 2020 fiscal years. “Going forward, we have revised our growth projections for 2019 and 2020 to 3.4% and 3.6% from our earlier forecasts of 4.1% and 4.3%, respectively”, said the Bank.
In Q1 this year, the ‘World Economic Situation and Prospects 2019’ Report published by a jointly with the United Nations Department of Economic and Social Affairs (UN/DESA) and other UN commerce and trade organisations, Zambia’s GDP was forecast to reach 3.9% and 3.8% in 2019 and 2020 respectively. Recently however, the IMF who have been an ardent follower of happenings on economic home soil on the fiscal and monetary policy side forecast real GDP 3.1%. A spot check on the Bloomberg Terminal this week showed that they had revised downwards from 4.8% in August 2018 to the 3.55% as at April 2019.
There are many factors that are considered in the calculation of a Country’s GDP. In Zambia’s case, the getting an approximation is event harder due to the fact that variables such as employment data are not compiled. In advanced economies, useful reports such as the monthly jobs report can be a useful aid. However, data collection around employment can prove to be challenge as the myriad of formal and informal statistics inevitably led able analysts to work with approximations and assumptions. The latter being the inherent cause of variations.
Inflation firmly in control
With the Bank of Zambia firmly echoing its intention to keep inflation within 6 to 8%, “annual inflation subsided for a third consecutive month, to 7.5% in March 2019 from 7.8% in February 2019 reflecting a slowdown in non-food inflation and decline in aggregate demand”, according to the Bank’s report. However, “going forward, inflation is projected to rise to 7.7% in April 2019 and then rise further to 7.9% in May reflecting expected poor harvest in the 2018/2019 and depreciation of the Zambian Kwacha”.
Brief Scare for the Kwacha
“In March 2019, the Zambian Kwacha marginally depreciated on account of sliding copper prices and lagged effects of trade deficit recorded in February 2019”, according to the Bank.
Bloomberg’s interview with Finance Minister could not have come at a better time. Aired on 12 of April 2019, the Kwacha’s performance on the day had been weakening following concerns over the country’s Dollar Reserves. The Kwacha against the dollar closed north of 12.5 and returned to the 12.2 region the week after the interview.
However, “going forward, the outlook suggests a weaker Kwacha in both the short- and medium- to long-term with forecasts suggesting a rate in the region ZMW/USD 12.5-13.5”, according to the Bank. With PMI weakening in tandem, the outlook for PMI will be largely impacted by the exchange rate as Purchasing Managers seek out value deals for inputs into their production value chains.
