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ZANACO has forecasted that Zambia’s inflation will begin to moderate in the second quarter of 2025, with the potential to fall back into the target band by the end of 2026.
The forecast is based on expectations of improved food supply, driven by a rebound in agricultural production supported by favorable rainfall patterns, as well as reduced power cuts.
This outlook is detailed in ZANACO’s third-quarter economic review and outlook report, released in December 2024.
The report, themed “Medium to Long-Term Outlook Looks Bright but Downside Risks are Mounting from both the Domestic and External Fronts,” paints a cautiously optimistic picture of the Zambian economy, while highlighting several potential risks.
ZANACO anticipated that inflation would continue to rise until the second quarter of 2025, largely due to tightening food supplies, especially grains, and ongoing electricity shortages.
The central bank’s monetary tightening, which began in the fourth quarter of 2024, was expected to have limited immediate impact, with inflation projected to remain above the six to eight percent target range through the first quarter of 2025.
According to ZANACO’s baseline forecasts, inflation is expected to reach 16.5 percent in the fourth quarter of 2024 and 17.3 percent in the first quarter of 2025.
These elevated levels are attributed to a combination of food supply constraints, ongoing power cuts, and a sharp increase in electricity tariffs in November 2024 under the emergency window.
Despite the short-term inflationary pressures, Zanaco remains optimistic about the medium to long-term outlook, particularly if the forecast for normal-to-above-normal rainfall materializes in the 2024/2025 rainy season.
The bank projects that inflation could begin moderating by the second quarter of 2025, eventually returning to the target band towards the end of 2026.
However, the bank also noted several key risks that could derail this positive outlook.
These include the possibility of a second consecutive year of drought, which could exacerbate food shortages, and reduced global demand for copper in the event of a worsening trade war between the US and China. Such developments could lead to deeper food shortages, prolonged power cuts, and further depreciation of the Kwacha, compounded by a stronger US dollar.
Overall, ZANACO’s economic outlook for Zambia emphasized both the potential for recovery and the significant challenges posed by domestic and global factors.
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