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Standard Bank: “Private Sector Economic Activity Falls for the Third Month in a Row”

Standard Bank: “Private Sector Economic Activity Falls for the Third Month in a Row”

Data from the latest Purchasing Managers Index™ (PMI™) survey, carried out by Standard Bank Mozambique, indicates that last January the country’s private sector economy contracted for the third month in a row and at the sharpest pace in two years. Trends in production and new orders continued to worsen, resulting in the first drop in employment since February 2022, the Carta de Moçambique news portal reported on Wednesday 7 February.

According to the survey, indicators above 50 point to an improvement in business conditions compared to the previous month, while indicators below 50 show a deterioration. In January, the main PMI indicator fell below 50 for the third month running, down to 47.8 from 48.8 in December.

Commenting on the results of the survey, Standard Bank Mozambique’s chief economist, Fáusio Mussá, said that the decline in the PMI mainly reflects falls in production, new orders, employment and purchases, which points to weak aggregate demand.

“Consistent with weak aggregate demand, and with the metical stable, companies reported a lack of pressure on purchasing costs, which helped to keep sales prices relatively stable. The future expectations sub-index continued to signal prospects for increased investment, sales and profits, most likely associated with the resumption this year of investment in the Liquefied Natural Gas (LNG) project in Cabo Delgado,” the source pointed out.

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In his comment, Standard Bank’s chief economist pointed to the cut, at the end of January, of the main monetary policy interest rate, MIMO, by the Bank of Mozambique, by 75 basis points, from 17.25 per cent to 16.5 per cent. For Faúsio Mussá, the central bank’s decision signals the start of a cycle of monetary policy easing, enabled by falling inflation.

“We maintain our forecasts of inflation of 5.9 per cent for 2024 and 6.3 per cent for 2025, after 5.3 per cent in 2023, in the context of a possible impact from the El Niño phenomenon. A prudent reduction in monetary policy interest rates implies that financing conditions remain tight,” the source concluded.

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