The Global Economy is projected to grow by 6% in 2021 and 4.9% in 2022 with much of the growth taking place in developed countries. The United States real GDP is expected to increase by 6.8% on the back of the anticipated fiscal stimulus in the second half of 2021 and the reopening of the economy Real GDP growth rate for China is forecasted to come in at 8.5% in 2021 buoyed by strong industrial activity and robust exports.
The Local Economy : Witnessed over the past twelve months is an economic turn around from a hyper inflated operating environment characterised by a depreciating currency, foreign currency shortages, and harsh weather The prevailing economic stability characterised by a stable local currency, availability of foreign currency to some extent, and slowing annual inflation is expected to spill over into 2022 Buttressing this positive developments is a good 2021 harvest season coupled with forecasted good rainfall, international support, supportive policies, and expected full reopening of the economy on the back of a successful vaccine rollout program As a result, the Ministry of finance expects the economy to grow by 7% in 2021 The IMF is more conservative as evidenced by their forecast of 3.9% in 2021 and 5.1% in 2022.
Money Supply The Consumer : With 2021 Gross Domestic Product estimated to come in at circa 7% by year end and M2 money supply increasing by an average of 6% per month since January 2021 we are of the view the extra liquidity will continue to stimulate the economy However, rising inflation poses a downside risk as the growth of money supply is higher than expected GDP growth for the year The cost of living continues to increase and is significantly above poor households’ income in urban and rural areas The cost of food and the total cost of living increased by 3.1% and 3.7% respectively, between July and August Prices in ZWL for staple foods and most goods and services continue to increase mainly driven by increasing parallel market exchange rates In typical deficit producing areas, households’ own produced food stocks are depleting with some poor households having already exhausted their stocks.
The Zimbabwe Stock Exchange has been displaying considerable market breadth with gains registered across the board Prices remain sticky downwards with funds seemingly being diverted into the market as a hedging strategy against an increasingly volatile parallel market rate Whilst a kneejerk reaction would be to invest into any available stock as an alternative to cash, we are of the view that most counters are now trading at a premium to fair value creating downside risk of a bubble As such we are leaning towards companies that are fundamentally sound and have a culture of management execution that prioritizes long term shareholder value creation.
