With the economy striving to claw back eroded growth post disease pandemic, the business ecosystem remains prone to external shocks such as currency weakness and suppressed demand. Import data continues to reflect an increase in capital goods flow signaling appetite for the economy to recover its growth momentum but for downside risks posed by autopsy effects of the fiscal environment which has given a cue to the business ecosystem and financial markets. The central bank kept benchmark interest rates tad, an extension of expansionary monetary policy that the year has seen to cushion COVID induced business and credit risks. Cost of funding/borrowing remains lower on the shorter end yet term funding on the longer end remains elevated in the 30’s (in percentage terms). Interventions such as targeted medium term facility have not effectively delivered lower funding costs as anticipated keeping interest rate costs fairly high for Zambia.
CURRENCY SELL OFF PRESSURE DRIVING INPUT PRICES WIDER
The exchange rate has become the driver of inflationary pressure both at consumer and manufacturing input level. Zambia Statistics Agency – ZSA recently announced a 140 basis point jumped in November consumer price index to 17.4% while input prices continue to rise occasioned by an uptick in demand for goods and services reflected in the rising backlog of dollar orders yet to be satisfied in a market facing scarcity.
22 MONTHS IN THE DOLDRUMS
October Purchasing Managers Index headlined 48.9 from 46.6 in the previous month while the November reading is forecast a few points shy of 50 at 49.3 constrained by currency related woes. This will be the 22nd month Zambia will still be in contraction (<50).
ENERGY COSTS FORECAST TO CONTINUE WEIGHING
Other persistent themes such as energy cost from an elevated fuel prices and effects of extended power rationing will weight the reading to some extent. Forward looking, international crude prices have been on the uptick given the vaccine euphoria spelling recovery in petroleum demand and the anticipated OPEC+ member state decision to extend supply cuts ti support pricing, pump crises could be on the cusp of an upward adjustment analysed in tandem with a weakening Kwacha.
Market Economics is expected to release PMIs for African nations, Zambia inclusive this week on the 04 December.
The Kwacha Arbitrageur.