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Misanet.com / The Insider, 1 June - Zimbabwe's economy is expected to shrink by 7.1 percent this year according to Zimbabwe Financial Holdings, one of the country's financial houses in which the government still has a substantial stock holding. It says last year, the economy declined by an estimated 6.6 percent. This is probably one of the highest figures to be mentioned as it has generally been reported that the decline was below 5 percent. Finhold says agriculture is expected to decline by 12.2 percent having declined by 10.5 percent last year. The figure is considered conservative, as some have said it will decline by 15 percent this year and 25 percent next year. Manufacturing is expected to decline by 10 percent. It declined by 7.3 percent last year. Mining is expected to have the biggest decline of 17.2 percent, down from 14.1 percent last year. Finhold says the major factors behind the expected sluggish performance of these sectors include the persistent shortages of foreign currency and fuel, weak domestic demand, low growth in exports and fairly high production costs. Agricultural output is expected to be further adversely affected by excessive rains which reduced crop yields in some low lying parts of the country. Tourism is expected to remain low due to lack of confidence in the country, arising mainly from an unfavourable socio-economic environment. According to Sagit Stockbrokers unemployment is likely to remain high because companies are not borrowing in order to expand their businesses because of the uncertainty in the economy. It says expectations of higher inflation and further depreciation of the Zimbabwe dollar have not helped the situation. Investors continue to postpone projects until there is a sustained decline in inflation. Inflation, which stood at 55.2 percent in December, rose to 57 percent in January, increased by 0.5 percent in February, declined to 55.8 percent in March and was up by 1.1 percent in April to 56.9 percent. Though a third of the year has already passed and inflation has so far averaged 56.8 percent, the central bank has said inflation for this year will average 70 percent which gives the impression that things are yet to get worse. There are also fears that the exchange rate has been kept artificially low. It has been pegged at $55 to a United States dollar while the black market rate is now more than double that. Airlines, for example, are now selling tickets at the exchange rate of Z$ 130 to a United States dollar. The government has said it is not going to devalue the currency. Some financial institutions have argued that the country has not benefited from previous devaluations. Finance Minister Simba Makoni has also said he is not going to review interest rates, lowered in January to boost the productive sector. Sagit says while interest rates were lowered to revive ailing business and generate employment, three months down the line, there are indications that the policy is backfiring. - If the recently released money supply and inflation figures are anything to go by, the country is certainly worse off than before, it says. - In February, money supply growth leapt from 57 percent to 67.9 percent, an increase of nearly 11 percentage points. We are not surprised by these latest figures and have pointed out in the past that the current interest policy is not reflective of the economy's health. - Clearly, heavily borrowed companies have benefited from the reduced interest rates and have taken the opportunity to restructure their borrowings, as has the government.... The high money supply growth is an indication that the lax monetary policy, which the government is pursuing, is inappropriate and inconsistent with macro-economic developments.
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