Harare - Zimbabwe’s economy is suffering from a slump in consumer spending and will probably be beset by deflation in coming months, according to the finance ministry.

Sales of consumer goods fell by as much as 30 percent in February, the ministry said in its Treasury State of the Economy Report for February.

Government revenue collection in the month fell 10 percent from the year earlier to $248 million (R2.6 billion).

The decline in consumer spending reflected an “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.”

Consumer prices fell by 0.49 percent in February from a year earlier after advancing at an annual rate of 0.41 percent in January.

ZimTrade, a government agency that promotes trade and investment, says the economy was 49 percent smaller last year than it was in 2000, when the government began its failed land reform programme.

While the value of exports rose 10 percent to $278.1m in January, the latest month for which figures were provided, imports were $487.5m, 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.

Zimbabwe produced 831.3kg of gold in February, compared with 926.8kg in January, while nickel production fell by 2 tons to 1 557 tons in the month.

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

Manufacturing had been curbed by a flood of imports and smuggling, the finance ministry said.

Manufacturing capacity use was 38 percent in December last year, according to ZimTrade.

Government spending on recurrent costs had “crowded out” possible expenditure on capital projects, with only 4 percent of expenditure going to capital projects.

In February, 58 percent of government expenditure was on employment costs, it said. – Bloomberg