Wednesday, March 19, 2014

Zimbabwe enters deflation

2014-03-18 19:46


Special Report

Zimbabwe caps salaries of state firm bosses
Zimbabwe caps salaries of state firm bosses
Zimbabwe’s cabinet has announced a $6 000 monthly salary cap for executives of state-owned entities, following reports they were grossly overpaid.
Harare - Zimbabwe recorded deflation in February, official figures showed on Tuesday, in what analysts deemed a further danger sign for the struggling economy.
Year-on-year inflation for February was minus 0.49% - almost a whole percentage point lower than January's 0.41% inflation - according to the Zimbabwe National Statistical Agency.
"This is a reflection that there is dampened economic activity. There is hardly any major economic activity taking place," said Godfrey Kanyenze, director of the Labour and Economic Development Research Institute of Zimbabwe.
"Fewer people have money to buy the available goods and services. We really need to come up with fiscal stimuli to whip up demand," he told AFP.
Sustained deflation can be dangerous for an economy as a widespread decline in prices may lead to consumers delaying purchases.
It can trigger a destructive spiral where companies forced to cut prices also cut wages and lay off workers, leaving consumers with less money to spend and the entire economy worse off.
Kanyenze said the country needs to attract more foreign investment and boost mining and agriculture exports, but its risk profile is keeping investors away.
Eric Bloch, an independent economist based in the second city of Bulawayo, said one monthly drop was insignificant in the context of poor economic performance.
"There is no benefit or prejudice to the consumer," Bloch said. "It's as bad as continuous inflation."
Most Zimbabweans have little disposable income, which translates into low aggregate demand for goods and services.
This is pressing on employment, rather than consumers holding off on purchases.
In January already the main trade union federation said companies were laying off around 300 people every week.
Zimbabwe's economy has been on a downturn for over a decade, with most people living below the poverty line and firms either downsizing or pulling down the shutters.
But economists estimate the country is only running at a third of its current capacity, and conditions have failed to improve after President Robert Mugabe's ZANU-PF party won polls in July last year.
The government has also been pursuing a policy of pushing foreign companies to hand over a majority stake to locals, which has served to reduce foreign investment.


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