Malawi economic growth rate below potential

Malawi’s economic growth is far below its full potential with the country’s 2013 Gross Domestic Product (GDP) having increased by about half compared to its possible full throttle.

The World Bank June 2014 Global Economic Prospects Report released this week indicates that Malawi achieved 4.2 percent GDP growth rate in 2013—in contrast to 6.1 percent rate touted earlier by the government and the five percent growth rate estimated by the International Monetary Fund (IMF).

President Mutharika
President Mutharika

The World Bank report titled ‘Shifting priorities’, building for the future, indicates that in 2013 Malawi had a potential to achieve about 7.7 percent GDP growth rate but only managed to attain 55 percent of the possible total economic output increase—leaving some economic resources including labour, capital and land idle.

However, the bank projects that the country’s GDP in 2014 will grow by 4.4 percent a few notches above last year’s growth—but will only be able to achieve about 67 percent of the its potential.

Malawi is projected to achieve a reduction in the GDP gap—the difference between actual and potential—in 2015 and 2016, however, the actual projected and the potential rates are far below the 7.5 percent target promised by the Peter Mutharika administration.

In view of the GDP gaps, analysts note that a persistent and large output gaps have severe consequences for the labour market and other economic resources. They argue that workers and capital remaining idle for a long time can cause long-lasting damage to their productivity.

But during the President’s inauguration, Peter Mutharika said his government will implement policies that will turnaround the country’s economy to achieve a 7.5 percent economic growth rate for the next five years.

The report, however, indicates that fixed investments will grow by 11.6 percent this year, 12 percent in 2015 and by 10.6 percent in 2016.

The World Bank also indicates that consumption by the private sector, the economy’s engine for economic growth, rose by 2.3 percent last year, and is projected to grow by 4.6 percent this year.

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