Market Report, "Mozambique Business Forecast Report Q3 2013", published

We are forecasting 2013 real GDP growth at 7.1% year-on-year (yo- y), lower than the 7.4% y-o-y achieved in 2012. The main reason for the slowdown is our expectation that inflation will accelerate and coal exports will underperform as a result of floods which hit south and central Mozambique early in the year. From 2014, we expect growth to gather momentum towards a peak of 15.9% y-o-y in 2020, when gas production is expected to commence.

Inflation in Mozambique will continue to rise owing to a combination of base effects, increasing money supply growth and the effects of floods in early 2013. Appreciation of the metical against the South African rand over the last 12 months will temper inflationary pressures to some extent given that South Africa is Mozambique's main source of imports. Given our views on inflation, we believe the monetary authorities will hold the policy rate at 9.50% for the remainder of 2013.

Full Report Details at
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Lower aluminium prices and disruption to coal exports has led to a deterioration in Mozambique's external profile over recent months.

However, a recovery in coal and strong donor support as well as foreign direct investment inflows will preclude the situation from escalating into a balance of payments crisis.

Major Forecast Changes

Flooding in early 2013 has had less of an impact on agricultural production than we initially anticipated and we have therefore revised up our 2013 growth forecast to 7.1%, from 6.7% previously.

Our Oil & Gas team has adjusted its expectations for the onset of gas production, which is now foreseen in 2020 (as opposed to 2018 previously). We have revised our GDP growth and fiscal and external account projections to reflect this.

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 agriculture-based economy.

A failure to address deficient infrastructure is the most pressing risk to our upbeat view on the Mozambican economy. Transport infrastructure in particular is currently inadequate to get Mozambique's natural riches to international markets. Failure to address this would negatively impact our expectation that exports will be a major driver of growth over the coming years.

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