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Boston, MA -- (SBWIRE) -- 10/14/2013 -- Core Views
We maintain that the Mozambican economy will expand by 7.1% year-on-year (y-o-y) in 2013, slower than the 7.4% rate of 2012 due to the impact floods had on agricultural output in the first quarter. We expect economic growth will begin to accelerate again from 2014, peaking at 15.9% in 2020 when we believe that the country will see first production from gas reserves recently discovered off the northern coast.
Although significant challenges remain, there is some reason to believe that progress will be made in resolving the ongoing dispute between Mozambican ruling party Frelimo and the opposition Renamo. The leaders of both parties appear intransigent and this progress will therefore likely come in spite of rather than because of them.
We believe that the Mozambican monetary authorities will wait to see how quickly the economy recovers from a flood-induced growth slowdown in Q113 before deciding to enact further interest rate cuts, and we expect interest rates to remain at their current level of 9.00% for the remainder of 2013. That said, with inflation likely to remain relatively subdued thanks to a weak rand, the authorities have the scope to make further cuts if growth data in any way disappoints.
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Major Forecast Changes
We have made significant changes to our current account forecasts following the release of new and historically revised data from the authorities. We now see the shortfall reaching a massive 46.0% of GDP in 2013 thanks to a surge in the services account deficit. That said, we continue to believe that the external accounts will not pose a risk to macroeconomic stability because the demand for goods and services driving the shortfall is coming from projects that are foreign-run and financed.
Key Risks To Outlook
As the recent floods have shown, Mozambique is vulnerable to adverse weather. Over the years ahead the weather, specifically too much or too little rain, will continue to pose a risk to the agriculturally based economy.
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