Mozambique´s GDP should fall 3.8% in 2020, owing to the impact of the Covid-19 pandemic, according to the Economist Intelligence Unit (EIU), which has revised the forecast upwards.
Real GDP shrank by 3.3% year on year in the second quarter of 2020 “owing to the impact of the pandemic, but will be dampened in the second half by low base effects”, the EIU says in its latest report on Mozambique.
“The impact of the pandemic will weigh heavily on the economy, with real GDP contracting by 3.8% in 2020, before recovering slowly to growth of 1% in 2021. Real GDP growth will average 6.9% a year in 2022-24, driven mainly by the gas industry”, it adds.
The EIU´s previous GDP forecast pointed to a decline of 4.4%, 0.6 percentage points bellow the new one.
2020 Forecasts for inflation were also revised by the EIU, to 3.4% in 2020, from 3.6% previously, “reflecting reduced consumer demand during the lockdown (which will outweigh the impact of the currency depreciation)”.
Regarding the Covid-19 pandemic, the report says “existing preventive measures have failed to contain the virus, owing to poor testing. Many restrictions are likely to remain in place, although they will be eased further as the government seeks to limit the economic and social fallout from the pandemic”.
Looking ahead, another “struggle” for the government will be to contain the insurgency in Cabo Delgado province or to address its underlying causes, “potentially delaying development of the nascent gas sector”.
“Mozambique was cut off from capital markets in 2016 following the revelation of illegally contracted secret debt, but private-sector partners are willing to finance the gas industry”, the EIU says.
The fiscal deficit is expected to widen in 2020 as revenue plummets, and to contract in 2021 as government spending dips, and “accelerating economic growth and gas earnings will boost revenue and reduce the deficit through to 2024”.
The current-account deficit will widen to 28.4% of GDP in 2020 as exports decline, and to 35.5% of GDP in 2023 as capital goods imports for the gas industry rise, the EIU adds.
