Economy still on growth path: AfDB

bank said housing rentals, rates and domestic power were key drivers of inflation last year.
“These challenges are likely to have more effect on inflation in 2012, given the recent hikes in rentals and the persisting power outages,” said the bank.

The year-on-year inflation closed last year at 4,9 percent from 3,2 percent in December 2010 and indications are that pressure will continue in the current year.
Some analysts said there would be more inflationary pressures from other macroeconomic influences, rapid money supply growth and a weaker US dollar.

“Accordingly, inflation is likely to be significantly higher than the 5 percent projected in the Budget,” said one analyst.
Interest rates are likely to firm, reflecting slower liquidity growth at a time when banks are already loaned up. Credit lines are scarcer and more expensive than before.

Lending rates remained relatively high between January and October last year due to persistent liquidity shortages resulting from perceived risk, limited external lines of credit and limited access to the lender of the last resort.

In a bid to assist banks, the Ministry of Finance is organising a US$100 million facility as the lender of the last resort facility.
The annual inflation outcome is within the Government target of between 4,5 and 5 percent.

Main drivers of annual inflation for December 2011 included communications, housing, electricity, gas and other fuels, alcohol, beverages, tobacco and transport.
The major threat to the economy is the building inflationary pressures, lack of fiscal space, unsustainably high wage bill and vulnerability of the financial sector.
Inflation is forecast to remain steady as microeconomic fundamentals have recovered, showing a positive trajectory.

Food security is also improving and these strides would all contribute positively to a stronger fiscal position but, more importantly, disposable incomes are on the rise.
Zimbabwe’s economy is expected to grow by 9,4 percent this year from the projected 9,3 percent for 2011 and economic analysts have maintained that inflationary pressures will slow down economic growth.

Projected growth would be driven by increased production in agriculture and mining.
But mining, the major contributor to economic development, is threatened by power shortages and lack of financing.

Uncertainty over the country’s investment environment characterised by political uncertainty has continued to affect growth in the mining sector.
However, the majority of mining companies have responded to indigenisation requirements, with Zimplats, Unki Mine and Mimosa having ceded 10 percent equity to local communities.

The sector is also suffering from capacity gaps created by the external brain drain.