2013-01-01 03:05:53 - Zimbabwe Business Forecast Report Q4 2012 - a new country guide report on companiesandmarkets.com

The outlook for the Zimbabwean economy is broadly unchanged since our last update and we therefore see little reason to downgrade our 2012 growth forecast of 7.4%, despite the government´s official forecast being downgraded from 9.4% to 5.6%. The economy continues to be choked by a shortage of liquidity as investor and donor concerns about government policy and a high import bill mean that the dollarised economy is not seeing the level of net inflows necessary to prime the pump of domestic demand. Zimbabwe´s external accounts remain in a perilous state with a massive current account deficit unlikely to be covered by capital and financial inflows. As a result, domestic liquidity will remain extremely tight and the country will not

 

 

be able to build up reserves or make progress at clearing its debt arrears without agreeing some form of debt forgiveness with its creditors.

Major Forecast Changes

Although we maintain our view that inflation will rise during the second half of 2012 on account of food prices, more benign-than-expected price growth during the first half of the year has led us to revise down our end-2012 target to 6.1% from 7.5% previously. Looking ahead to 2013 and the years beyond, Zimbabwean inflation will depend on government rather than monetary policy.

Key Risks To Outlook

The political environment presents the most salient risk to our outlook for the Zimbabwean economy. If upcoming elections descend into violent chaos or if the security forces refuse to accept an MDC victory, our growth forecasts would likely be rendered too optimistic. On the other hand, if there is a quicker, more decisive resolution to ongoing political uncertainty, foreign investment would likely flow quickly into the country and would cause our forecasts to prove pessimistic.

There are significant policy risks. Premature abandonment of the foreign currency regime, for instance, would likely have a negative impact on the economy. The weather is also a major risk. The country has seen several droughts over the last two decades which have had a devastating impact on the important agricultural sector and there is always a risk of a recurrence of poor rains.

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