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Zimbabwe’s Economy Faces Slumping Consumer Deflation

April 7 (Bloomberg) -- Zimbabwe’s economy is suffering from a slump in consumer spending and will probably be beset by deflation in coming months, according to the country’s Finance Ministry.

Sales of consumer goods fell by as much as 30 percent in February, the ministry said in its February Treasury State of The Economy Report, which was obtained by Bloomberg News. Revenue collection also fell by 10 percent in the month from the same period the year earlier to $248 million.

The decline in consumer spending is “reflecting intensification of the liquidity crisis in the economy,” the ministry said. “Deflationary pressures experienced during February will continue to affect the economy in 2014, due to an extending negative output gap.”

The government of President Robert Mugabe, in power since 1980, is trying to revive an economy that was 49 percent smaller last year than it was in 2000, according to ZimTrade, a government agency that promotes trade and investment. A failed land reform program that began in 2000 and more than a decade of political disputes slashed exports and deterred investment.

While the value of exports rose 10 percent in January, the latest month for which figures were provided, to $278.1 million, imports were $487.5 million, a 16 percent decline from the month earlier. Fifteen metal and engineering companies closed during the month, according to the ministry.

“Mineral output remained depressed during the month of February,” the ministry said.

Gold, Platinum

The southern African nation produced 831.3 kilograms of gold in February, compared with 926.8 kilograms in January while nickel production fell 2 metric tons to 1,557 tons in the month.

Platinum production rose to 1,044 kilograms from 1,015 kilograms, palladium output increased to 832 kilograms from 809 kilograms while rhodium production jumped to 96 kilograms from 93 kilograms, the ministry said. Chrome output surged to 36,974 tons from 28,207 tons as Sinosteel’s local unit, Zimasco, boosted it capacity utilization.

Manufacturing has also been curbed by a flood of imports and smuggling, the ministry said. Manufacturing capacity use was 38 percent in December, according to ZimTrade.

Consumer prices fell by 0.49 percent in February from the year earlier after advancing 0.41 percent in January.

Government spending on recurrent costs has “crowded out” possible expenditure on capital projects, with only four percent of expenditure going to capital projects. In February, 58 percent of government expenditure was on employment costs, it said.

Zimbabwe has the world’s second-biggest platinum and chrome reserves after South Africa. It also has deposits of gold, coal and iron ore.

To contact the reporters on this story: Godfrey Marawanyika in Harare at gmarawanyika@bloomberg.net; Brian Latham in Harare at blatham@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net Antony Sguazzin, Karl Maier

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