Zim to remain in deflation until 2016

HARARE - Zimbabwe is expected to remain in deflationary mode until the end of 2016 in the absence of strong economic policies, an international think-tank has said.

This comes as the country’s annual inflation rate receded by 0,18 percentage points to -3,29 percent  in October from  of -3,11 percent recorded in September.

Oxford economics research firm, NKC African Economics (NKC), yesterday said Zimbabwe’s latest inflation figures were the second-largest negative reading among some two dozen economies worldwide that, according to Trading Economics data, recorded consumer price deflation during October.

Other countries at the top of the list include war-torn territories like Lebanon, Mauritania and Afghanistan.

The economic think-tank noted that government’s inability to curb deflation — in the absence of a sovereign currency and benchmark interest rates — is to the detriment of Zimbabwe’s medium- to long-term economic growth potential by eating into its productive sector.

“Deflation is contributing to our forecast for sub — one percent economic growth this year — that will be the worst reading since the end of the hyperinflation period,” said NKC.

This comes as Zimbabwe has struggled with deflationary pressures in the past two years as the country’s leadership remained preoccupied by the deadly succession debacle at the expense of the economy.

In July this year government slashed its economic growth to 1,5 percent from an initial target of 3,2 percent in a move described by analysts as Zimbabwe’s first step towards recession — its first since 2008, when hyperinflation clocked 500 billion percent.

Market experts say deflation has taken root as consumer demand shrinks and the economy struggles with a shortage of dollars. Once bustling factories in Harare are now rusty shells, devastated by the 1999-2008 recession that cut gross domestic product by about half.

In addition, the mines are reeling from the fall in commodity prices and a drought has left 16 percent of the population needing food aid. Formal unemployment stands at more than 80 percent and power shortages are getting worse.

The Confederation of Zimbabwe Industries’ latest manufacturing utilisation capacity results revealed a decline from 36,5 percent last year to 34 percent in 2015 due to power cuts and difficulties in accessing working capital and expansion from internal and offshore sources.

Meanwhile, economic experts assert that benign domestic price pressures in Zimbabwe are associated with several factors, including a weak economy — resulting in almost no demand-side pressure on prices- and thin liquidity in the cash economy.

The strength of the US dollar-dominated multi-currency regime against regional currencies  and some moderation in retail prices as the introduction of bond coins translated into rounded prices being adjusted lower have also been blamed for fuelling deflation.

“Declining consumer prices are having an adverse impact on local productive capacity with Zimbabwean companies producing food and consumer goods having a tough time competing with cheaper imports from South Africa,” NKC said.

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