Hawkins said predictions by Finance Minister, Tendai Biti that the country’s inflation rate currently at 4.3% will close 2012 at below 5% are a pie in the sky, arguing that the latter’s protectionist policies will eventually drive up inflation.
“The 25% import surcharge and a number of import duty increases will have knock-on effects on prices, while the 35% increase in government spending will increase aggregate demand at least twice as fast as aggregate supply increases.
“Unfortunately the recent lurch towards protectionism – Biti’s 25% import surcharge – will push up costs and prices, protect the inefficient and fuel inflation. Accordingly inflation is likely to be significantly higher than the 5% projected in the budget, possibly returning to double figures before the end of 2012,” Hawkins noted.
Hawkins also dispelled Biti’s predictions that the country’s economy will grow by between 7.8%-9% this year, noting that utmost the economy will grow by only 5% because of the tight liquidity conditions and domestic political tensions.
“To expect that without convincing there will be sufficient investment to sustain 8% growth is pie-in-the-sky. More likely in 2012 is below trend growth (4% to 5% at best) because of the reportedly-low level of agricultural plantings, the uncertain global economy, tight market liquidity conditions and domestic political tensions,” Hawkins indicated
“As capacity utilisation increases – in industry and in finance – so the recovery trajectory will flatten out, especially given the two binding constraints on expansion – electricity supply and long-term capital.”
Economic experts have already warned that failure to introduce policies aimed at increasing cash inflows within the economy will hinder efforts to consolidate economic gains.