POLICY uncertainties and absence of capital for major sectors of Zimbabwe's economy are responsible for the slowdown in Gross Domestic Product (GDP), a leading capital research firm has said.
In its latest third quarter equities review and outlook report for Zimbabwe, MMC Capital presented findings and insights with regard to the economic developments that have taken place in the third quarter as they relate to the Zimbabwean equities market performance.
The firm revised Zimbabwe's GDP growth projections downwards to 3% from 3,5% in the third quarter, due to weakness in the agriculture, mining and services sectors, as well as falling capacity utilisation.
"The Zimbabwean economy performed below expectations but recovery in key sectors in particular agriculture, mining and services sectors continued amidst liquidity challenges, macro-economic policy and political risks. Money supply growth is slowing down, which will be a notable headwind going forward," MMC Capital said.
The firm said the economic contraction that started early in the year has not abated as aggregate demand continues to wane and economic output continues to decline.
The economy was besieged with limited liquidity, which left most economic agents failing to operate at optimal levels resulting in lower economic growth.
"The manufacturing sector remained besieged with structural challenges of inadequate infrastructure, limited raw materials as most manufactures have to import their raw material requirements, subjecting these businesses to increased commodity price risks," MMC said.
It noted that the need to import has also meant that a lot of the manufacturers' funds have to be tied up for longer in inventories, further increasing the cost of doing business for these manufacturers with consequent failure to compete with foreign products.
The sector's plight deteriorated further in the quarter under review as the decline in disposable incomes meant reduced demand which led most manufacturers to operate at low capacity, further threatening the future of the sector.
MMC said the local manufacturing sector would continue to be haunted by capitalisation challenges in the fourth quarter of this year, while foreign product competition would remain strong in the short to medium term.
"We expect mineral revenues to remain depressed in 2013, as commodities continue to feel the heat of weaker global and Chinese demand. Platinum on the other hand may benefit from the resurgence in the automobile sector and the challenges that are being experienced in the South African platinum sector," the firm noted.
Inflation was on a downtrend reaching a low of 0,86% in September due to a weak South African rand and low crude oil prices, as well as waning domestic demand.
MMC noted that there was a reduction in the amount of disposable incomes in the local economy which has constrained retailers from increasing prices.