Standard Bank sees Mozambique overcoming recession in 2nd quarter of 2021

Login

Register

http://www.clubofmozambique.com/

Standard Bank sees Mozambique overcoming recession in 2nd quarter of 2021

11:36 CAT | 05 Nov 2020

in file CoM

The chief economist at Standard Bank in Maputo foresees the Mozambican economy recovering from recession during the second quarter of 2021, according to an analysis note released on Wednesday.

“As per our base-growth scenario, we only see the economy exiting recession during the second quarter of 2021, which should yield an average growth rate of 2% y/y for the year, from an expected contraction of 1.3% y/y this year,” Fáusio Mussá writes.

The figures remain in line with those released by the bank in early October.

“Both economic activity and business sentiment in Mozambique remains depressed, negatively impacted by the Covid-19 pandemic, ongoing security challenges and limited scope for both monetary and fiscal policies to stimulate a recovery,” the note adds.

The Standard’s chief economist considered that “the pause on interest rate easing cycle from the Central Bank reflects increased risks to the inflation outlook, ongoing currency and fiscal pressures”.

The Bank of Mozambique and the country’s banking association have paused the ‘prime rate’ – the reference interest rate – of the Mozambican economy at 15.9% since August.

“We see the main policy interest rate, MIMO, being kept on hold at the current level of 10.25% level for a prolonged period,” Mussá admits.

In this scenario, the prime lending interest rate is “likely to remain stable at 15.9%”.

Fáusio Mussa also foresees “that inflation will likely increase from an average slightly above 3% y/y this year to 6.1% y/y in 2021, pressurised by a weaker Metical”.

The US dollar closed October at 73.24 meticais, “up by 19.1% ytd”, that is, since the beginning of the year, “and by 16.5% year-on-year”, that is compared to October of last year.

Ongoing foreign exchange liquidity pressure “has potential to continue to drive the USD/MZN pair upwards”.

The bank points to a 77 meticais mark by year end, which will represent an increase of 5.1% compared to current USD/MZN trading levels.

“Both peace and structural reforms to foster investment outside the resources sector are required to improve sentiment,” Mussá’s note concludes.