Malawi economic uncertainty foreseen in third quarter- report

The economic outlook for the third quarter of 2013 is uncertain and tricky as Malawi approaches the election year 2014.

This is the message contained in a second quarter report of the year by finance company Alliance Capital Limited published this week.

The report says unless there will be controlled government spending the economic future remains bleak.

“The IMF and the donor community remain optimistic yet most local analysts remain skeptical of the economic progress so far, most believe it’s only temporally. Inflation is expected to continue slowing down in the third quarter at a decelerating rate compared to the second quarter as the lean period commences towards the end of this quarter, and agriculture harvests slowly dries,” Alliance Capital said.

They note that interest rates will keep dropping as long as tight monetary policy remains enforced with liquidity in the market expected to slightly improve due to civil servants pension funds expected to start flowing into the market.

Kwacha to start weakening in September
Kwacha to start weakening in September

“The local unit [Kwacha] is expected to stabilise against the main trading partners at the beginning of the period. This is due to the tobacco proceeds which are still in progress and donor inflow expected to support the budget.

“In our opinion which is based on our forecast model and market research, the kwacha will start weakening around September. We forecast the local unit to officially trade between K355 and K365 against the US dollar by the end of the third quarter,” the report reads.

On the capital market, Alliance Capital said the Malawi Stock Exchange will continue shinning as interest rates start to go down and the civil servants pension funds expected to start flowing into the economy at the end of July.

The report says the so called blue chips will keep appreciating.

“Penny stocks may also pick not necessarily based on fundamentals but due to lack of investment options in the market. It is also important to mention that most listed companies are forecasting good first quart results; this will also rally the local bourse in the period under forecast,” said Alliance Capital.

Second quarter highlights were noted as there were some improvements on the economic front as the local currency against all expectations gained ground against major trading currencies even before tobacco auction reached its peak.

In view of this, the Reserve Bank of Malawi (RBM) moved into the local market to purchase excess US dollar in a bid to boost official international reserves. The appreciation of the Kwacha has however been costly to tobacco growers during the 2013 marketing season.

The period witnessed a continued reduction in inflation from 38 percent in March to 31 percent in April amidst agricultural harvest and appreciation of the Malawi Kwacha as interest rates reported mixed movements but remained relatively high above inflation, closing the quarter marginally low compared to the first quarter.

Alliance Capital is involved in pension fund asset management, portfolio investment management, money market brokerage, share Investment services and corporate finance advisory.

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