Malawi economic outlook

Malawi's economic landscape is facing a mix of challenges and opportunities as the Reserve Bank of Malawi maintains key lending rates in the economy amidst dual dynamics in food and non-food inflation. The Bank projects a slow down in inflation to 22 per cent by year end, but risks loom large stemming from rising food prices, external imbalances, and fiscal risks. Petro van Eck, Economist for South & Central Africa at Standard Bank Group, sheds light on the market developments in Malawi. Van Eck expresses a cautious outlook on the inflation trend compared to the MPC's optimism. With food price inflation remaining high due to supply constraints from a maize shortage caused by a drought in 2024, food prices have a significant impact on headline inflation as food comprises more than 50 per cent of the consumer basket. While expecting inflation to decrease due to base effects, Van Eck foresees challenges ahead, leading to the MPC maintaining the rate at 26 per cent. The external environment poses significant risks for Malawi, a country heavily reliant on external support and facing uncertainties amid increased tariffs and trade wars. With a narrow export base primarily focused on tobacco, Malawi struggles to cover imports independently, raising concerns about donor funding and its impact on local prices for non-food items. While the World Bank highlights Malawi's fragile economic situation, potential green shoots emerge from the mining sector, particularly in deposits of graphite, titanium, and rare earths. However, Van Eck notes that significant upfront investments are required before these mining opportunities can significantly impact the economy, emphasizing a longer-term view for growth. Despite the Reserve Bank of Malawi's positive growth forecast of 4%, Van Eck remains less optimistic, predicting a 2.5% growth in 2025. The recovery in the agricultural sector is expected to be a key driver of growth, supported by increased rainfall and improved agricultural output. However, challenges such as delays in acquiring fertilizers pose risks to the sector's performance this year. In conclusion, Malawi's economic outlook presents a complex landscape with potential for growth in the mining sector and agriculture, tempered by uncertainties in inflation trends and external risks. As the country navigates these challenges, proactive measures and strategic investments will be crucial for sustainable economic development.