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Firm outlines 3 economic risks

Malawi’s economic outlook faces considerable downside risks, including the impact of the Covid-19 pandemic, weather shocks and fiscal slippages, Nico Asset Managers Limited has warned.

In its 2020 Annual Economic Report released on Wednesday, the firm said despite the easing up of Covid-19 restrictions recently that led to the pickup in economic activity, the increase in Covid-19 cases poses a huge risk to the economy.

“Restrictions and measures to contain the spread of the Covid-19 outbreak may also have another impact on the economic outlook of Malawi,” reads the report in part.

Taking into consideration these factors and the long-standing issue of intermittent power supply which in turn affect the country’s manufacturing industry, the firm said gross domestic product will most likely be lower than government’s projections.

Last year, despite a robust performance in the first half of 2020 owing to a strong harvest and substantial government spending, economic activity in the second half of 2020 suffered from a further deterioration of the global economic outlook, resulting in substantially lower exports, a worsening economic impact of the Covid-19 pandemic and a longer persistence of the shock.

In view of this, government further revised downwards its 2020 economic growth projections from 1.9 percent to 1.2 percent, but pinned 2021 growth forecast at 4.5 percent regardless of the effects brought about by the Covid-19 pandemic.

Meanwhile, various local and international institutions have revised their projections for the country’s economy and based on these revised projections, the economy will grow by an estimated average of 3.3 percent in 2021 and 5.3 percent in 2022.

The World Bank, for instance, has put Malawi’s economic growth at 3.3 percent this year, below the pre-Covid-19 pandemic projections as risks, including the resurgence of the virus, remain prevalent.

The World Bank projection, contained in its January 2021 Global Economic Prospects, is two percentage points higher than its projection of 1.3  percent in 2020.

A low growth rate percent is worrying to the economy as it could further increase poverty levels, especially in the informal service sectors in urban areas, let alone in rural areas where the majority of Malawians live.

Poverty levels were projected to worsen in the just ended year to 56.3 percent from 50. 5 percent as the measures which were effected to reduce the Covid-19 spread had reduced household incomes by an average of 11.4 percent, according to the International Food Policy Research Institute.

Economic commentators have argued that given the rising cases of the pandemic in the country, growth rate may indeed be minimal this year.

A University of Malawi’s Chancellor College economics lecturer Ben Kaluwa indicated that the impact of Covid-19 may not be as bad as last year considering that the economy is now dealing with something they know.

“We have seen the second wave of the pandemic which seems more devastating than last year and potentially threatens growth,” he said.

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