Central bank revises inflation forecast upwards

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Central bank revises inflation forecast upwards

2:17 CAT | 15 May 2019

in file CoM

Projections from the Department of Economic Studies of the Bank of Mozambique (BM) point to an upward revision of the cost of living indicator for 2019, contrary to the initial forecasts advanced in February of about 6%.

Without advancing figures, the central bank department asserts that inflation will remain in single digits (it was 3.5% in 2018), but that internal and external shocks will exacerbate the outlook.

The worsening of this indicator is due to the increase in the price of oil in the international market, supply shock caused by the recent natural disasters (cyclones Idai and Kenneth), a continuing trend of depreciation of the exchange rate as a result of the increase of imports of goods to ensure the reconstruction of infrastructure in areas affected by natural disasters, as well as the financing of the economy in general.

“The risks associated with the outlook for inflation remain, in general, negative. At the internal level, the main source of risk is the sustainability of public debt in the context of uncertainties regarding the financing of the 2019 election deficit, coupled with the need for humanitarian assistance, reconstruction of infrastructures and loss of public revenue in the central and northern regions,” the Bank of Mozambique reveals.

At the external level, there are significant risks of slowing global growth in the face of the ongoing trade tension between the main economies (US and China), with an impact on external trade flows and volatility of international merchandise prices. With the cost of living worsening, the economy as a whole pays the “final bill”.

The slowdown in economic activity is due to the sharp fall in production in agriculture, trade and transport as a result of cyclones Idai and Kenneth.

Last week, the government revised its economic growth forecast for the year downwards, with new projections pointing to an increase in gross domestic product of between 2 and 2.5%, against its initial forecast of 4.7%.

By Edson Arante

Source: O País