Despite the fact that 60% in all the industries included in the GDP calculation are not at their pre-pandemic levels in the fourth quarter 2019, Namibia’s economy appears to be on track to perform more than it did in two years ago.
Simonis Storm analysts claim that the GDP figures for the second quarter of 2022 show an economic growth rate of 5,6%, which is quite high when compared to figures from emerging markets.
Simonis states that the growth is mainly supported by mining, 29%, financial services, 16%, transport, 11%, and health services, 10%.
“The latest growth rates are far above the 2 – 3% range supporting our 2,5% annual growth forecast for 2022. Hence, growth is likely to overshoot consensus forecasts averaging 2,8%,” said economist Theo Klein in a review released on Wednesday.
“At the start of the year, we identified mining, agriculture, ICT, transport, tourism (hotels and restaurants) and financial services as economic growth drivers in 2022.
“To date, only three of these sectors – agriculture, mining and ICT – have recovered to above fourth quarter 2019 economic levels,” the analyst said.
Simonis said that private consumption increased by 8,4% quarter on quarter (q/q), slightly less than the 9,2% q/q recorded during the first quarter in 2022. Government spending declined by 15,7% quarter-on-quarter (2022), following an increase of 6,9% in the quarter 2022.
Diamonds, copper, and uranium are Namibia’s main exports. However, this has not helped the trade balance. Namibia recorded an average trade deficit (N$3,5 billion per month) from January to July, Simonis said.
“Inflation is one of the biggest risks to local economic growth as private consumption expenditure accounted for 80,0% and 83,3% of GDP in the first and second quarter of 2022, respectively.”
MONETARY POLICY
South Africa and Namibia have increased their respective repo interest rates by 250bps & 175bps respectively over the past year. However, both countries’ official inflation rates are still below the repo rate, which suggests that monetary policy remains accommodative.
“We see the repo rates between South Africa and Namibia equalised at 7% by the end of this year, with the prime rate at 10,50% in South Africa and 10,75% in Namibia.
“We also see a 50bps hike in the first quarter of 2023 in South Africa and Namibia, followed by a 25bps cut in the third and fourth quarter of 2023, to bring the repo rates back to 7,00% by end of the fourth quarter of 2023,” said Simonis.
INFLATION
Inflation was at an average of 7,1% in Namibia during the first two months in the third quarter 2022. This compares to 5,7% for all of the second-quarter 2022 months and 4,5% for the first quarter 2022.
“Goods inflation remains the main driver of local inflation, with services inflation only averaging 2,9% year to date (YTD) compared to 7,6% average goods inflation YTD,” said Simonis, adding that during the first two months of the third quarter of 2022, transport, food, alcohol and housing and utilities were the main contributors to inflation rates.
All major commodity prices are currently in decline, with the exception of the energy market. Metals and industrial commodity price dropped by 20,5% from their peak in March 2022. Global food prices were down by 11,9% and energy prices rose by 3,6% at the end of July 2022.
Although commodity prices are down since their March 2022 peak, the increased local mining production has still produced high prices. This would support higher export earnings and tax revenues.
Manufacturers are facing higher input costs, and consumer spending is coming in lower from the most advanced economies. This impacts business sentiment for the immediate future.
A decline in factory order and manufacturing activity should support a moderation at commodity prices through the end of the year, lowering Namibia’s export potential.
Both the national occupancy rates as well as foreign arrivals are on the rise, more than doubling in the first two quarters of 2022 compared with the same period last.
Namibia is a country that has no restrictions or regulations on business operations. This would benefit not only the local tourism sector but also businesses all over the country. Due to the large value chain in tourism, other sectors will also benefit from the increased tourist inflows.
All categories saw double-digit growth in marketing activities during the first two quarters of 2022 compared with the same period last.
“Crop production is expected to weigh on the agricultural sector in 2022, due to sporadic rainfall not benefiting all areas equally as some areas had late rainfall and others had excessive rainfall causing crop damage,” said Simonis.
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Source: namibian