Covid-19 to heavily bruise GDP growth
Investment management and advisory firm, Alliance Capital Limited, has said it expects Malawi’s economic growth to be heavily weighed down by the effects of the coronavirus.
In its first quarter economic report released on Friday, Alliance Capital say fiscal spending pressures are envisaged to mount further mainly emanating from the health sector and also as government tries to widen its social safety nets in response to the coronavirus pandemic.
The firm says as the economy has slowed down, with some businesses coming to a complete halt, revenue collection targets against actual revenue collected will present very huge variances.
“Tourism, remittances from people in the diaspora and foreign direct investment and Official Development Assistance will all decrease markedly and this is likely to negatively impact the exchange rate. Exports are expected to drop in both value and volume as global commodity markets experience price shocks and as some of our major export markets are experiencing massive job losses, capital expenditure cuts and general re-profiling of spending.
“It is also expected that the economic and business downturn caused by Covid-19 will compel local banks to adjust their premiums for greater risk and SMEs will be hit hardest,” reads the report in part.
Alliance Capital says the stock market will be affected as demand will be suppressed even further as economic agents will adjust their expenditure patterns.
The firm adds that coronavirus is also expected to affect performance of most listed companies and companies in the hospitality industry will be hit the hardest.
This, according to the firm, will also affect overall demand for shares.
“Inflation is expected to fall back to single digits in the coming months as both food and nonfood inflation will come down owing to the recent decrease in fuel prices and the onset of the harvesting season.
“The absence of aggregate demand pressures will pull inflation down further. With low inflation and a slow economy, it is expected that monetary policy will be relaxed further to support a crippled economy through heightened lending by commercial banks especially to the private sector,” reads the report.
Reserve Bank of Malawi (RBM) Governor, Dalitso Kabambe, last week said the country’s economic outlook remains misty in the wake of Covid-19.
“The key question for me is; how would the pandemic behave in Malawi. What pattern is it going to take? Is it going to take the same pattern as in the US where you are seeing a big increase on daily basis? Or is it going to be gradual and not go that far?
“When you talk to people in the Ministry of Health, the experts who are familiar with pandemics, they are also not certain as to what pattern it is going to be like. So it really depends,” Kabambe said.
He noted that in their economic analysis, they have three models where the impact is minor, moderate and then the worst case scenario.
