Home » Business » Liquidity Crunch Fuelling Deflation – Analysts

The liquidity challenges prevailing in the economy have caused a squeeze on local demand and are adding to deflationary pressures, equities analysts say.

An equities research by IH Securities said that the dynamics in Zimbabwe’s external sector means that there is no inflow of “new” money, and so the broad money supply has stagnated, registering zero growth throughout 2013.

The report explores the Zimbabwean consumer market and the key sectors on liquidity and affordability challenges pervading the local economy.

“This has put a plug on private sector credit which too has registered very little growth since the beginning of 2012. Deposit expansion has been lagging behind credit growth, resulting in excess demand for credit which in turn has driven up the cost of borrowing to prohibitive levels,” the IH Securities said.

Low levels of domestic credit and liquidity on consumer companies limit their access to credit to finance capital expenditure and working capital.

Consumer stocks performance results have reflected these challenges, with top-line growth averaging only about 5 percent, even in the most resilient consumer counters.

Since the second half of 2013, growth in liquidity has stagnated and has resulted in a major contraction in private sector lending.

This has dried up funding in an economy already fraught with poverty and unemployment.

IH Securities expects some pick-up in the consumer sector driven mainly by an anticipated improvement in agricultural performance which is forecast to grow 7 percent this year compared to a 1,3 percent contraction in the sector the prior year.

“With as many as 71,8 percent of employed, formally and informally, Zimbabweans working in the agricultural sector, the benefits of a g agricultural season will filter through into the consumer sector and lead to higher consumer spend.

“The civil servant salary increment set to take place this month will benefit 3,4 percent of the economically active population and provide a boost to the sector, although we question the sustainability of such an increment given an already pressurised fiscus,” said IH Securities.

Source : The Herald