BY MTHANDAZO NYONI
RESEARCHERS at Morgan&Co have predicted that Zimbabwe’s gross domestic product (GDP) will grow by 4,5% this year, tracking trends in the Chinese economy, which consumes the bulk of Harare’s commodities and other products.
The 4,5% will be slightly behind a 5,5% GDP growth projected by government in December last year.
However, it demonstrates China’s growing influence in Zimbabwe’s economy, where its firms have been constructing everything from roads to airports and dams.
Under its ‘Look East’ policy announced in 2005, Zimbabwe turned to Asian economies including China, to drive all spheres of its economy after Western powers imposed tough embargoes on Harare following a diplomatic standoff.
China has injected billions into Zimbabwe’s economy since then, and has been credited for avoiding a catastrophe during the tenure of the damaging sanctions.
In its 2022 economic outlook released Friday, Morgan&Co said headwinds in China would be felt in Zimbabwe.
“We note that the Chinese economy expanded 8,1% in 2021,” Morgan&Co said.
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“However, weakening growth in the closing months of 2021 suggests that trouble is still on the horizon as the country contends with a deepening real estate crisis, renewed Covid outbreaks and strict no-tolerance approaches to controlling the virus.”
China has been contending with a plethora of problems recently, including tumult in its property sector.
That country’s real estate developer Evergrande, which has about US$300 billion of total liabilities, has been struggling to pay debts and was recently ordered to demolish dozens buildings.
In addition, policymakers in Beijing are grappling with the impact of the Omicron variant, which was reported for the first time on January 15.
Morgan & Co said China’s zero-Covid approach to containing the virus could also spell serious problems for the economy in 2022.
Chinese economic growth in 2022 has been slashed to 4,3% from 4,8%.
“The country’s strict measures have therefore highlighted lingering weaknesses in consumption. A nationwide slowdown in the crucially important property sector has also weighed on the wider economy and sparked a global reckoning over the health of the industry,” it said.
“The implication is that slow growth in China will negatively impact commodity prices, which in turn hurt countries in Sub-Saharan Africa, including Zimbabwe. In our view, a Chinese slowdown will have negative ramifications on the sub-Saharan African region.”
“Looking at the Zimbabwean context, the value of export receipts is driven largely by minerals and agricultural commodities.
“Chinese demand is an important part of the equation given that it determines the prices of key commodities such as tobacco, gold and PGMs. Our GDP growth estimate for Zimbabwe is 4,5% in 2022 and 3% in 2023.”
Year-on-year inflation for February was 66.1% from 60,6% in January, according to data published by the Zimbabwe National Statistics Agency.
Morgan & Co estimated that the inflation will exceed 100% in 2022 and the exchange rate will deteriorate to about US$1:$400 by year-end.
“Our concern is that we are likely going to witness foreign inflation spill overs in Zimbabwe given that the country is largely import-dependent,” they said.
In addition, the researchers said a sharp increase in international food and oil prices has also started to feed into domestic consumer prices as retailers, unable to absorb the rising costs, are passing on the increases to consumers.
“We contend that price level risks remain elevated in 2022 and beyond, bearing in mind that there could be unplanned government expenditures as the country moves into electioneering mode,” the report added.
“We contend that political interests will always take centre stage, and this could lead to budget overruns.”