ZANACO’s economic research unit head Dr Patrick Mumbi Chileshe says while this year’s economic growth picked up in the second quarter, there are risks that still exist going into the last quarter of year. And Zanaco expects tighter food supplies towards the end of the year, with rising costs.
In a presentation during Zambia National Commercial Bank’s inaugural mid-year economic review and outlook at Taj Pamodzi Hotel in Lusaka yesterday, Dr Chileshe said in the second quarter, “economic activity did recover somewhat compared to a slump of economic activity that we observed in the first quarter.”
“In the first quarter, what we saw is that the economy did slow down a lot but there is some sort of a recovery in the second quarter. In quarter one of 2018, annual growth was at 2.6 per cent compared to 3.2 per cent that was experienced in 2017. Last year’s growth has actually now been downgraded from 4.1 per cent to 3.6 per cent,” Dr Chileshe explained.
“Our conclusions, basically, are that this year, we expect economic growth to pick up in the second quarter. However, risks still exist. We are also going to see that inflationary pressures are going to subside in the third quarter but later inflationary pressures are going to accelerate in the fourth quarter of 2018.”
He noted that the economic research unit’s forecast was tied to tight food supply, “especially as we head into the rainy season.”
“We are likely to have a much tighter supply of food and that is going to lead to rising food prices. Higher exchange rate or volatility is going to affect inflation. We are also seeing interest rates bottoming out; going forward we might see interest rates start rising faster and non-performing loans, tight liquidity conditions and also the crowding out effect of government borrowing are likely to affect interest rates,” Dr Chileshe said, adding that the kwacha was expected to largely remain stable but with a downside risk to it.
“The higher holdings of securities by offshore players remain a key risk [and] external debt is likely to create…. Sometimes some of these things may not be true, some of them may be true. But because of the rumours that may be created in the market, it may unsettle market players and that can lead to depreciation.”
Dr Chileshe pointed out further that the global economy generally expanded though at a slower pace than it had been growing since 2016.
“The key drivers of this growth on a global level have actually been the rising commodity prices for developing countries, especially for countries that are exporting oil. For advanced economies, what we’ve seen is that global trade has been a key driver of global growth and that gives us food for thought. Given the ongoing trade tensions across the world, especially between the US and China, this might actually foretell bad times ahead,” explained Dr Chileshe while emphasising that the escalating trade wars the two largest economies in the world could lead to a slowdown in both global growth as well as growth in emerging and developing economies “such as ours.
“The outlook for global growth is that in 2018 and 2019, the economy is going to continue expanding but there are risks that have started emerging. Projections that are available indicate that in 2018 the economy will grow between 3.7 per cent and 3.9 per cent and in 2019 it will grow between 3.6 per cent and 3.9 per cent.”
And Zanaco acting managing director and chief executive officer Lishala Situmbeko briefly outlined the rationale of setting up an economic research unit in the bank’s treasury department.
“You may be asking [why] Zanaco is holding an economic update. [But] why do we need this particular economic update? What we’ve seen in the past is that, generally, when information is shared, it’s either coming from the authorities or coming from an entity which is not resident in Zambia and they would come in and discuss our GDP, our money supply, our inflation. But then if you ask a question ‘what about those actors who are actually within Zambia; what is it that they think about these numbers?’ Therein is the space that Zanaco is…. We believe [that] as a local entity, as a bank that has been operating here since 1969, it’s only imperative that we make sure that we inform the Zambian public, our customers the way we see the economy,” noted Situmbeko.
Zanaco board chairperson Charity Lumpa noted that the bank believed that the sustainable growth of its customers was dependent not only on the financial services it offered or how well the economy was performing but also on how well informed clients were “about the macro and socio-economic environment as well as global trends.”
“Right now there are a lot of things that are happening in the country – we have been downgraded, we have debt that is surmounting. We all don’t know what the impact of all this means to us. So, this Unit services include collecting current information relating to commodity prices, market prices, market intelligence, economic indicators and wide-ranging investment advice. This is designed to assist our clients to make informed decisions, make plans on good, solid foundation for their finances and investments,” said Lumpa.