Economic outlook is mixed, says Nico

An economic and business advisory firm says economic outlook appears to be a mixed bag of both fortune and misfortune with inflation, a major macroeconomic fundamental likely to continue its downward trend in the short term before it reaccelerates.

Nico Assets Managers says in its monthly economic update released on Tuesday that inflation is expected to decrease due to the appreciation of the kwacha and the commencement of the harvesting season

This, it says, will reduce food prices which will, however, remain elevated in the short term.

It quotes the Economic Intelligence Unit (EIU) which expects inflation, now at 23.4 percent, to average 25.1 percent in 2016.

The Nico Asset s Managers report also predict that the kwacha would appreciate in the short term as the tobacco season opens and foreign currency starts to flow into the country, a development which will ease the inflationary pressure.

However, Nico Assets expect the currency to depreciate again later on the account of the significant current account deficit and weak investment inflows, despite tobacco exports and improved forex reserves.

Interest rates on the interbank market are expected to remain elevated due to the volatility of the liquidity levels, a high monetary policy rate and high inflation rates, according to Nico.

The firm says it expects exports to grow modestly in 2016 after the low returns experienced in 2014 and 2015 that resulted from the shutdown of Kayelekera uranium mine.

It says import growth will be constrained by the government’s tight policy stance, weak foreign-exchange inflows and low oil prices.