A LEADING advisory firm projected this week that consumer demand will remain firm this year despite a challenging economic environment characterised by weakening local currency and high inflation.
The Zimbabwean economy continues to face inflation, currency, and exchange rate headwinds. Year-to-date, the exchange rate has depreciated by 647% on the parallel market. Blended month-on-month inflation has jumped from 0,7% in January 2023 to 15,7% in June, suggesting an increasing cost of living.
These developments are likely going to weigh down on the projected 3,8% gross domestic product (GDP) growth forecasted by the government.
The International Monetary Fund forecasts Zimbabwe GDP to grow by 2,5% in 2023 anchored by a good agriculture season and above average commodity prices.
But in its latest consumer sector report, Inter Horizon Securities (IH) said the Zimbabwe consumer sector appears to be fairly valued compared to historical averages but cheap versus regional peers.
“Despite a challenging economic environment characterised by weakening local currency and high inflation, we believe consumer demand will remain firm supported by the informal sector, which makes the bulk of the economy and shows resilience to macroeconomic changes,” it said.
“We expect consumer demand to remain firm supported by a good agriculture season and above average precious metals prices. With the majority of the population employed in the informal sector where currency of trade is USD [United States dollar], we are of the view that currency headwinds will affect mainly those in the formal sector.
“Despite an anticipated firm consumer demand, we are skewed towards consumer facing stocks that have an ability to generate revenue in USD, capacity to penetrate the informal sector, ability to adjust prices in line with inflation and exchange rate movements and good management.”
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The country continues using a dual currency structure with more than 75% of transactions in the economy being carried out in USD, based on the central bank statistics. On this backdrop, using civil servants as a proxy, IH said salaries have also dollarised albeit still far below 2016 levels.
Regardless, it noted that USD inflation is now picking up at a faster rate compared to salary adjustments.
“Given the significant proportion of what is classified as the informal sector that is active in maize production, and following a good agriculture season consumers based in the agro-sector should experience recovery in earnings from 2022 levels,” IH said.
The research firm said high inflation and continuous exchange rate depreciation pose a major risk to the 2023 budget, through reducing nominal and real value of revenue collections. It said deviation of inflation and exchange rate from target may result in GDP growth rate decreasing to 1,1%.
