Malawi Economic Outlook

• Prospects for 2012 and 2013 indicate a slight deceleration of growth.
• The suspension of direct budget support by donors will have implications for growth in the future.
• Youth unemployment and underemployment remain a challenge in both the formal and informal sectors.

Real gross domestic product (GDP) growth fell in 2011 after poor macroeconomic fundamentals prompted suspension of donor support. Reduced external inflows contributed to lower levels of reserves and shortages both in foreign exchange and in essential commodities, including fuel and inputs for manufacturing. This was worsened by poor earnings from tobacco, the main export. Agriculture continues to be the main driver of GDP growth in Malawi, although mining and construction recently increased their contribution. Prospects for 2012 and 2013 show continued slow growth. Inflation has been maintained at single digits over most of this period. Average inflation may  rise in 2012 if the country fails to address the macroeconomic challenges of 2011. The suspension of the International Monetary Fund programme and the external budget support had an impact on the government’s ability to deliver on its development objectives. These were major causes of the foreign exchange and fuel crises that also affected private sector operations. Joyce Banda was appointed as Malawi’s new President after President Mutharika died of a heart attack on 5 April 2012. Banda’s appointment, until scheduled elections take place in 2014, is in line with Malawi’s constitution, stipulates that the vice-president takes over if the president dies.

Youth unemployment remains a challenge in both the formal and informal sectors, although according to the official definition, only 2.7% of young people aged from 15 to 24 are unemployed. This rate does not reflect underemployment in the agricultural sector which employs up to 80% of the labour force, nor reveal that working poverty is high because of to low wages: the minimum daily wage is less than USD 1 a day. Poor labour force data and inconsistencies in definitions make it hard to assess the extent of the problem. The absence of an updated policy for youth, lack of coherent responsibilities among government agencies and weak institutional capacity for skills development remain serious challenges. In addition, a small manufacturing