Mozambique’s Economic Downturn in Late 2023

In the last quarter of 2023, Standard Bank’s Purchasing Managers’ Index (PMI) reported a decline in Mozambique’s private sector economic activity.

The PMI is a key indicator of economic health. Scores above 50.0 indicate business improvement, while below 50.0 suggest decline.

In December, the PMI fell to 48.4, indicating a contraction for the second consecutive month.

This marked the lowest score in 11 months, down from 49.6 in November. Activity levels and purchases decreased, leading to the biggest stock reduction since July.

This downturn had effects. Order volumes for companies dropped. However, the decrease in demand for production materials sped up supplier deliveries.

It also kept cost pressures low despite a recent increase in production material prices.

Sales volumes also declined for the first time in almost a year. Companies noted that higher interest rates weakened customer buying power.

The rate of decline in new orders was slight but noticeable.

Inflation in the private sector remained low at the quarter’s end. Yet, a rise in purchase prices led to the first increase in production costs in three months.

Wages also rose, driven by a slight increase in employment, affecting labor costs.

Sale price inflation slowed down for the second month in a row, reaching a low since May. Some companies raised prices due to higher production costs and currency issues.

Others offered discounts to attract customers amid low demand.

Mozambican businesses stayed optimistic

Despite these challenges, Mozambican businesses stayed optimistic in December.

About 46% of surveyed companies expect production to rise, driven by strong sales and new product investments.

Fáusio Mussá, the bank’s chief economist, highlighted the low GDP growth outside the extractive sector.

Weak investment and fiscal and monetary pressures contributed to this. Through September 2023, GDP growth averaged 4.9% year-on-year.

The extractive sector’s GDP rose by 39.5%, while the non-extractive sector’s growth was more modest at 2.7%.

For 2024, the bank forecasts a 5.1% GDP growth, with Mussá citing benefits from rising LNG investment and state election-year spending in Mozambique.

Inflation, standing at 5.4% in November 2023, is expected to rise, mainly due to food prices. Year-end projections for 2024 suggest a 5.9% inflation rate.

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