Economic Analysis - Tentative Recovery Will Face Destabilising Headwinds - JULY 2017

BMI View: 2017 will see economic activity return to positive growth in Zimbabwe as improving weather conditions facilitate stronger harvests in the agriculture sector. That being said, growth will remain low on the back of constrained monetary and fiscal policy .

Real GDP growth will post a modest improvement in Zimbabwe over 2017 and 2018 as harvests begin to improve in the agriculture sector following a damaging drought in 2016. Furthermore, although the full consequences of the government's bond note programme have yet to materialise, early signs suggest that it has contributed to a much-needed increase in the M1 money supply, with inflation moving back into positive territory in February for the first time since 2014. As a result, we expect growth to reach 0.6% in 2017, after posting an estimated 1.8% recession in 2017.

Although we believe this trend of recovering growth will continue into 2018, with growth accelerating to 1.2%, we add that risks are heavily skewed to the downside. Not only could the threat of pestilence soon derail any improvement in the agriculture sector, but the government's expansion of its bond note programme could also lead to a notable increase in inflation, dimming prospects for any economic recovery in 2017. Even discounting these substantial risks, real GDP growth will remain constrained by the government's weak fiscal position and elevated political risk, limiting the prospect of meaningful investment into the economy.

Outlook For Recovery Undermined By Potent Risk
Zimbabwe - GDP
e/f = BMI estimate/forecast. Source: BMI/UN

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