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THE government must urgently come up with measures to stimulate demand in the economy to prevent deflation, an economic research firm has said. MMC Capital said in its 2014 Outlook that the continued decline in inflation was testimony that economic growth was slowing down.
This comes as Zimbabwe’s economy, once ravaged by hyperinflation, appears to have hit a plateau. Zimbabwe’s annual inflation has been on a sustained slide since 2009 and closed the month of December, 2013 at 0,33 percent after shedding 0,21 percentage points from November.
“We maintain our view that the economy is in need of inflation and the slowdown in inflation rate is testament that economic growth is slowing down and this is negatively impacting the consumer. Continued decline in the Consumer Price Index (CPI) growth rate may ultimately result in deflation — a general decline in price level of goods and services in the economy — which may have even more negative repercussions for the country’s economic growth and employment creation,” MMC Capital said.
Economists have said if the present disinflation continues, Zimbabwe would hit the deflation point next month or in March. Coming out of deflation, which is attained when inflation hits zero percent, would be a Herculean task, economists have warned.
MMC Capital said the government has to come up with expansionary policies to stimulate aggregate demand. Low salaries, which are below the Poverty Datum Line and an increase in the cost of living, have slowed down demand as workers struggle to make ends meet. MMC Capital said while there was room for recovery, lack of fresh capital remained the economy’s biggest challenge.
“Going forward, our view is that attracting large inflows of capital will remain challenging in the short-to-medium as there is still a need for the country to ‘cleanse’ itself from the negative perception,” the firm said. — New Ziana.
Online Reporter