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Economist Intelligence Unit projects economic slowdown

The Economist Intelligence Unit (EIU) says it expects the local economy to swell by 4.1 percent in 2017, down from 4.4 percent in 2017.

According to Nico Asset Managers’ February 2018 Economic Brief, EIU’s downward revision emanates from the likely reduction in maize output this season, expected slow growth in tobacco production and the industrial secto, which is unlikely to emerge as the key driver of growth due to stiff competition on the international market.

EIU’s prediction comes when the World Bank has pegged Malawi’s economic growth for 2018 at 4.50 percent while the International Monetary Fund s pegged it at five percent.

The forecast by the Bretton Woods institutions are dependent on sufficient agricultural output and power supply, a reduction in government borrowing if the national budget is sustained and [there is] prudent macroeconomic management to avoid further instability.

Nico Asset Managers says it expects the kwacha to remain stable in the short term due to continued availability of foreign exchange reserves, which are adequate to cushion the foreign exchange market and guard against the kwacha volatility.

In the medium to long term, the kwacha is expected to depreciate if the current downward trend in tobacco revenues is sustained as this would entail low forex reserves generated from tobacco sales.

The kwacha is also expected to depreciate in the medium to long term on account of significant current account deficits and weak foreign direct investment inflows.

On inflation, Nico says, in the short term, food inflationary pressures are likely to continue, driven by speculation that the dry spell and infestation of fall armyworms that are threatening this season’s maize output may lead to reduced output.

Nico adds that as the country moves towards the harvesting period, which commences in April for most farmers, availability of food may moderate food inflationary pressures.

However, Nico Asset Managers says this moderation is unlikely to be sustained as the expected output reduction prompts farmers and traders to hoard their stocks in anticipation of better prices as the demand for the staple crop starts to rise.

“Non-food inflation may increase due to a rise in global oil prices as a result of global reduction in oil production and rising tensions in the Middle East.

“Other factors that may put pressure on non-food inflation include the demand for wage increases, housing cost increases, increase in electricity tariff and strengthening of the South African rand which entail high import cost as the country’s imports are dominated by South African products,” reads the economic brief.

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