Economy to grow faster than population 2019-21

Economic Outlook for Zambia 2019

February 3, 2019

The outlook for emerging markets (EMs), including Africa, is mixed. Much depends on where economies are in their respective business cycles and on their ability to adapt to weaker external demand and policy normalisation. 

The softening in the Fed’s interest-rate stance and move toward a more data-driven approach will prove both a boon and burden to high-yielding emerging markets – depending on how the market interprets the data – resulting in higher levels of asset volatility. EMs that are plagued by greater levels of political risk and policy complacency will lack the impetus to generate sustainable productivity gains, with the higher sovereign risk possibly dissuading offshore investment suggests RMB Global Markets.

In sub-Saharan Africa (SSA), growth is expected to rise to 3.8% and 3.9% in 2019 and 2020, from 3.0% in 2018 (IMF forecasts) on the back of a general – yet slight – improvement in commodity prices compared to 2018, and higher investment spending. 

East Africa will be the major regional growth driver, as infrastructure investment and FDI into the up-and-coming oil and gas industry increases over the coming years. The bigger markets, like Nigeria and South Africa, continue to be a handbrake for sub-Saharan African (SSA) growth as their own expansion rates remain well below their long-term averages.

Zambia outlook

Economic growth in 2018 is expected to come in at 3.9% and push up modestly in the medium term to average 4.6% between 2019 and 2021 according RMB despite the new royalty tax regime in mining and the soon to be introduced sales tax. The tax rises are aimed at raising revenue to fund government a relentless uptick in expenditure not the least driven by interest payments. 

Copper, Zambia's key export, has softened due to slowing global growth amid trade tensions. However, ongoing electrification of vehicles and green energy may sustain demand for the metal and spur the demand for other critical minerals in the resource base of Zambia.

Inflation, which fell to within the Bank of Zambia policy range at the end of last year may push the upper boundary once more due to currency weakness and gradual rising oil in 2019. Transport accounts for 6% of the CPI.

The bottom line is the economy remains fragile despite some good growth ahead.