In beginning my forecast for the year 2023, allow me to draw your attention to the perils of 2022. What many hoped would be the year that the global economy arose entirely from the doldrums of COVID, presented a successive and almost as equally disruptive shock to economies around the world. Early in the year Putin invaded Ukraine and set in motion price hikes in energy and food markets. And so, with this in mind, forecasters and economists world over projected the lingering effects of this latest shock would take its toll on the economics of 2023. Many analysts predicted an outright recession in this year. Sentiment seems to be changing, however.
Analysts now foresee a more favourable outlook, with the envisaged “soft landing” seemingly more tenable. A soft landing is defined as reducing runaway inflation without causing an economic meltdown. These improving prospects are being driven by more than one factor. The first of these is the reopening of the Chinese economy. China and its populace have spent much of the past 3 years under intense Zero Covid lockdowns. This has placed a drag on global growth. Late last year, Chinese officials, abruptly abandoned this measure and in a haste removed most restrictions. In spite of the initial surge in cases, this act improved economic prospects. The Chinese economy is now projected to grow at about 4.4% this year and over 5% in 2024. While this does not match the record growth China has experienced in the past, it is above the global average and will likely prove to be a tide that lifts all other ships, or in this case economies. The resurgence of the Chinese economy will see increased demand in commodity markets, such as copper, oil and other metals. This is partly the reason why copper prices recently breached the $9,200 mark.
Secondly, the resilience of the US labour is another factor. The year 2022 saw the American federal reserve raise rates at record pace. It was anticipated, as a consequence that that country’s unemployment figures would go up. This has not been the case, however. Let me explain this. High interest rates disincentivise investment at the same time stifling consumption. Companies tend to report reduced revenues and respond by laying off workers. Bar the technology sector, this seems not to have been the case. This tightness has raised hopes among American analysts that the US can avoid a recession and achieve a “soft landing”. The Fed is expected to begin by slowing its rate hikes this year and eventually halt them altogether. The US dollar has also lost some of the record strength that characterized its 2022. All this will conspire to improve prospects for the rest of the world.
A similar scenario is evident in Europe. What many feared would be a harsh winter has proved not to be so. Fears were rife, particularly in the face of reduced gas from Russia, that a severe winter would
cripple industries and households. This winter has turned out much lighter than expected, with gas stock sufficient.
Coming back to Zambia. I must take cognizance of the shock of 2023, power outages. This will prove to be a risk to a positive outlook and improved economic growth. A further risk factor are further protractions at Konkola Copper Mines (KCM) and an inability to find an equity party at Mopani Copper Mines. Thirdly, COVID may spiral out of control, which can also jeopardise events. This notwithstanding I project the economy to grow by more than it did in 2022, where it expanded by 3.1%. I do expect debt restructuring to be finalized this year. This will bolster financial markets, including that of the currency. I do not expect issues at the two mines to drag on further beyond this year, with the worst-case scenario where only issues at one of them are resolved. It appears the government and communities of the Copperbelt are moving towards allowing Vedanta to return to KCM. The return of even KCM alone will significantly boost copper output which may cross at least the 900k mark as a consequence, particularly if the impasse is resolved expeditiously. I also must allude to what I expect to be a resilient crop harvest with the favourable rainfalls. This, however, will depend on the effect on the delay in input distribution. Also, I anticipate the increased foreign direct investment, government policies and greater international goodwill to reflect in a growth rate of between 3.5%-4%. All this will be enhanced by an improved global economic outlook.
On inflation, I expect continued downward trends. We may, however, only reach the target band in the year 2024, of 6%-8%. The effects of the Ukraine war seem to be dissipating in energy markets. However, the risks are tilted to the upside with the reopening of the world’s largest oil consumer, China. This may push up energy prices.
As I conclude, forecasts are just that, forecasts. Nothing is certain. The situation could be better. It could be worse. However, in view of the facts, with significant certainty I am optimistic about the year 2023. Time will, however, be the true test.
The Author is an Economist and member of the Economics Association of Zambia