Malawi’s Central Bank expects 2024 growth to almost double to 3.2%

Malawi, a Southern African nation, is currently facing a challenging economic environment marked by high inflation and the looming threat of a drought. Headline inflation in the country has been gradually decreasing this year, dropping from 35 percent in January to 31.8 percent. However, the impact of the current El Nino weather pattern poses a significant risk to the maize harvest and the pace of disinflation in the near future. To shed light on these pressing issues, Petro Van Eck, Economist for South and Central Africa at the Standard Bank Group, provided valuable insights into the economic landscape of Malawi. The persistently high inflation rate in Malawi is mainly driven by soaring food prices, as food constitutes over 50 percent of the consumer basket. Food price inflation has exceeded 40 percent since November, primarily due to the devaluation of the kwacha in November and Malawi's status as a net food importer. Furthermore, the ongoing drought in Malawi has resulted in a state of disaster in 23 out of the 28 districts, leading to a substantial loss in maize supply, further exacerbating the inflationary pressures. Van Eck highlighted the expectation that inflation will likely remain high due to the significant drop in maize supply, painting a challenging picture for consumers in the country. In response to the escalating inflation, the Central Bank of Malawi is anticipated to raise the policy rate by an additional 100 basis points during the upcoming Monetary Policy Committee meeting. This move comes after a previous 200 basis point increase in February aimed at curbing inflation. The adverse weather conditions and high inflation levels not only affect Malawi's immediate economic outlook but also pose risks to the country's medium-term growth prospects. Van Eck foresees increased downside risks to growth forecasts, with the economy projected to expand by just over 2 percent this year, a figure that may be revised downwards due to the prevailing challenges. The interconnectedness of the regional economies further complicates Malawi's economic landscape, with the drought in neighboring Zambia expected to impact Malawi's food supply, considering its dependence on food imports from Zambia. The loss of agricultural output in Malawi due to the adverse weather conditions will negatively affect economic activity and employment, particularly in the agriculture sector, which employs a significant portion of the workforce. Additionally, the high inflation levels are likely to diminish consumer purchasing power, further dampening economic growth prospects for the country. Looking ahead, the stability of the kwacha, Malawi's currency, remains a critical concern. Van Eck noted that while the currency had seen stability post-devaluation until March, slight depreciation occurred during the first central bank auction of the year. Although no significant fluctuations are imminent, the currency is under pressure, with expectations of gradual depreciation in the future. The overall outlook for Malawi's economy in 2024 remains challenging, with uncertainties surrounding inflation, the impact of the drought, and the stability of the currency. Amid these challenges, authorities in Malawi face the arduous task of navigating a complex economic landscape characterized by high inflation and external vulnerabilities. The upcoming policy decisions and economic measures will be crucial in steering the country towards sustainable growth and stability.