Global Economy
After a volatile period marked by the COVID-19 pandemic and the war in Ukraine, the global economy showed signs of stabilization in 2024. The stability experienced in 2024 contributed to a continued decline in global inflation, following the elevated price levels triggered by the pandemic and the war, both of which had severely disrupted global supply chains. Looking forward, both the World Bank and the International Monetary Fund (IMF) expect global inflation to continue its downward trajectory. However, several developed economies have revised their inflation forecasts upward due to growing concerns over global trade tensions. According to the International Monetary Fund (IMF), global GDP is projected to grow by 2.8% in 2025, a slowdown from the 3.3% growth recorded in 2024. This moderation in growth is largely attributed to the escalating trade tensions and heightened policy uncertainty, which continue to weigh on investor and consumer confidence. In our view, there is likely going to be further downward revisions as a result of the recent conflicts in the Russia-Ukraine and Israeli-Iranian regions. According to ILO analysis of G20 economies, emerging G20 countries led wage growth in 2024 with an average increase of 6.0%, significantly outpacing the 0.9% growth recorded in advanced G20 economies. According to the International Labour Organization (ILO), global unemployment is projected to hold steady at 4.9%, aligning with forecasts of slower global GDP growth in 2025.
Global Consumer
While the United States continues to lead as the largest consumer market, China- and to a lesser degree, India- are showing significant growth momentum. According to McKinsey, by 2025 the Chinese middle class is projected to reach 520mn, over half of the urban population, with a combined disposable income of RMB13.3tn (US$1.9tn). There is robust Asian consumer expenditure, especially in China and India as the region contributed 30% of household final consumption expenditure. Various trends have come to the fore, as Artificial Intelligence (Al) is reshaping consumer behaviour, with more people turning to Al-powered services that enhance and personalize the shopping experience. These services include intelligent customer support, personalized product recommendations and consumer insight generation. Simultaneously, the cost- of-living crisis, driven by high inflation, is prompting many consumers to switch loyalties in search of better value. In the retail and apparel sectors, private labels are gaining traction as price-conscious shoppers prioritize affordability. As a result of elevated debt levels, African countries are struggling to find ways to control their fiscal balances, resulting in increasing taxes and under-pressure disposable incomes. According to Ernst and Young, the region has an average personal tax rate of 31%, which is above the world average of 28.8% and this makes the African consumer relatively more financially constrained.
Local Economy
Looking ahead to the current year, Zimbabwe's economy is anticipated to experience a mild recovery, driven by a favorable agricultural season, increased investments in key sectors, and a rebound in commodity prices that will enhance mining revenues. On the demand side, private consumption growth, which had slowed down from 4.8% in 2023 to 2.5% in 2024, is expected to have a rosier year with household spending rebounding by 6.6% in 2025. For FY25, the expectation is a recovery in aggregate demand based on the positive developments in agriculture as well as in the mining sector. As per Zimstat, however, average earnings of 55% of the employed population are hovering at less than US$100. The country is sitting on a Gini co-efficient of 50.3 against a global average of 36.7. This highlights an increasingly unequal society in terms of earnings. Whilst we anticipate an uplift to volumes for consumer-facing companies this year owing to a likely recovery in consumer spend, on a margin basis, general cost structures continue to be on the rise. This corresponds to a volatile policy environment and the crystallization of costs in USD. Companies have had to notably absorb some of the legislation-linked costs of production, such as the sugar taxes and fast-food taxes, to support volumes objectives. In the consumer universe, we are skewed towards consumer-facing stocks that exhibit the ability to generate a significant portion of revenue in USD, have good management practices and are also consistent dividend payers. On the VFEX, Innscor is trading at a P/E (+1) of 6.3x versus peers at an average P/E of 13.8x with a forward dividend yield of 6.3%. On the ZSE, Delta is trading at a P/E (+1) of 4.4x versus peers at 14.5x and has a forecasted forward dividend yield of 9.0%.
