London’s IHS Markit is set to release its November purchasing managers index (PMI) readings for African nations next week. With easing cost push inflationary effects for Africa’s copper producer Zambia, expectations are that private sector pulse will detente as a result of currency stability in the month. This will hopefully moderate manufacturing costs for corporates.
Zambia however, still grapples with a higher fuel price costs that transmitted to selling prices. This was an autopsy of the upsurge in crude prices in September when ICE Brent rose to $80/bbl. The energy regulator adjusted pump prices 16.8% – 21% higher in response for petrol to kerosene. Crude bears however are putting pressure for most African nations nations to realign lower as crude has lost over 21% steam to trade at just below $60/bbl. October inflation for Zambia was a reflection of the kwacha slide and effects of fuel price hike breaching the 8% upper limit of the CPI target. With the kwacha calmer, November print was 50 points lower at 7.8%.
The offsetting business activity from a rise in mining productivity in the previous month is expected to have provided gross domestic product stimulus. However the gains are likely to be marginal for the month of November as Zambia is still not yet out of the woods.
We expect headline readings of about 45-47 (below the prescribed benchmark). Reading below 50 signal softer business activity while those above 50 show rising business pulse.
With the sub-optimal readings for the last 3-months, we proxy softer growth for Zambia’s GDP to between 3.5-3.8% growth, threatening the 4.1% MinFin targeted and slightly above the World Bank revised estimate of 3.4% for 2018.
Zambia’s November inflation decelerated 50 bps (0.5%) to 7.8%, within the 6-8% targeted year end bracket.