Business positive despite GDP letdown

The Mozambican private sector economy has continued to expand despite the country’s growth slowing down.According to the latest PMI survey conducted by Standard Bank, private sector business conditions improved for five consecutive months as firms continued to receive greater intakes of new business. However, a much slower increase in business activity weighed on performance, leading to weaker job creation and a slight drop in input purchases.The index rose in February this year, the highest growth since July 2023, before dropping again in March before trending upwards once more.In the latest PMI, the bank found that growth was supported in September by a moderate rise in new order volumes. Mozambican firms reported the introduction of new services, expanded capacities and new client wins driving sales. The election this month (October) also encouraged clients to bring forward orders.But, although higher levels of new work prompted expansion in business activity in September, the rate of growth softened significantly from previous months. Reports from the country indicated this slower demand growth was due to limited financial resources and reduced imports. Growth also eased in the manufacturing, wholesale and retail, as well as services sectors. Reductions in output were also apparent across the agriculture and construction sectors.According to Fáusio Mussá, chief economist for Standard Bank Mozambique, the PMI for the country remains volatile. “The Standard Bank Mozambique PMI fell to a seasonally adjusted 50-.3 in September after rising to 50.9 in August, therefore remaining volatile. September PMI data shows softer growth in output, new orders, employment, supplier delivery times and stocks of purchases.”He said business sentiment also remained volatile, with survey respondents indicating they were expecting softer growth in output over the next 12 months.“Inf lation, last reported at 2.7% year-on-year (y-o-y) in August, has been bottoming as seasonal month-on-month disinf lation comes to an end and intermittent foreign exchange supply limits the imports of basic consumption goods.“Despite monetary policy interest rates being cut since the beginning of this year, with the prime lending interest rate now down to around 20%, interest rates remain high in real terms and financing conditions remain tight.”He said government borrowing had grown rapidly, thereby crowding private sector credit. “This, alongside intermittent foreign exchange supply, has seen growth in credit to the economy in negative territory since November last year, contracting by -4.1% y-o-y in July, implying limited private sector investment, except for the extractive sector.”Mussá said GDP had grown by just 3.9% in the first half of this year, down from an upwardly revised 4.6% in the second half of 2023 and 6.2% in the first half of last year.GDP growth may even slow further, he concluded. LV