BoN lowers growth forecast
Risks to domestic growth include a slow recovery in international commodity prices, expected slow demand from Namibia’s key trading partners, exchange rate volatility and weather conditions.
Jo-Maré Duddy – The Bank of Namibia (BoN) expects economic growth of 1.5% this year, less than half the growth for 2019 the central bank projected in December 2017.
Releasing its latest Economic Outlook towards the end of December, the BoN pinned average economic growth for Sub-Saharan Africa this year at 3.8%.
In the past year, the BoN has consistently lowered its domestic growth forecasts for 2019. In December 2017 it expected growth of 3.1%. Last February, this was trimmed to 2.1%. In July, the BoN cut its forecast to 1.9% before reducing it further last month.
The BoN agrees with finance minister Calle Schlettwein, who in his mid-year budget review in October said Namibia’s economic growth for 2018 is expected to be -0.2%, marking the second consecutive year of recession.
The consumer, currently the main driver of the economy, will remain under pressure. The BoN now expects the wholesale and retail sector to grow by 1.8% in 2019, significantly lower than the 3.1% it estimated in July 2018.
Despite the lower forecast, the BoN anticipates recovery in the sector after it being in recession in both 2017 and 2018.
According to the BoN the expected contraction of the sector in 2018 “reflects the general weakness in economic activities and the associated job losses in sectors such as construction and mining”.
“Further, low household spending continues to impact the performance of the sector negatively as reflected in negative growth rates in subsectors such as vehicles and furniture,” the BoN says.
The second biggest driver of the economy – public administration and defence – is expected to show no growth at all in 2019. The BoN estimates this sector grew by -3.6% last year.
Mining, agriculture
The mining sector is likely to be in recession this year and in 2020, registering growth of -1% and -4% respectively. This follows an anticipated bumper growth of 14.4% in 2018.
Lower growth will mainly be on the back of subdued diamond and uranium mining. Both 2019 and 2020 are projected to be negative growth years for diamonds: -5.3% this year and -8.1% in 2020.
Uranium mining is expected to deliver meagre growth of 3.6% in 2019 after booming with an estimated 37.5% last year. The scaling-up of production at Husab boosted growth last year.
Growth this year will however be hampered by Langer Heinrich which was put on care and maintenance in the middle of 2018. In July last year, the BoN forecast growth of 15.6% for uranium mining in 2019.
The BoN feels slightly more upbeat about prospects for agriculture and expects growth of 4.7% in the sector this year. In July it forecast 4.1%. Livestock farming is expected to grow 4.8%, while crop farming and forestry is likely to reach 4.6%.
Construction, manufacturing
Construction is anticipated to exit three consecutive recession years, registering growth in the vicinity of 1.6% in 2019. This is a significant turn-around for the -7.6% the BoN forecast in July.
The central bank says its upward revision is due to an increase in government spending on construction and in the value of buildings completed during the first ten months of 2018.
The BoN expects growth in the manufacturing sector to tick up to 2.3% this year, an upward revision of its forecast of 2.2% in July.
“The improved growth for the manufacturing sector during 2018 and 2019 will be supported largely by grain mill products and beverages. Diamond processing is projected to grow by 11.0 percent and 5.0 percent in 2018 and 2019, respectively,” the BoN says.
Risks
According to the BoN, risks to domestic growth include a slow recovery in international commodity prices, expected slow demand from Namibia’s key trading partners, exchange rate volatility and weather conditions.
“Risks to domestic growth are dominated by the persistently low international price for uranium, which may cause uranium mines to either reduce or completely cease production as their operations remain unprofitable,” the bank says.
It continues: “Low growth in Angola, especially since 2016, has continued to reverberate in sectors such as wholesale and retail trade, education and real estate and business services. Thus, a delay in the actual recovery in Angola and near-zero growth in South Africa are expected to hold back potential recovery in the domestic economy.”
A slowdown in demand for minerals from China due to trade wars may increase the risk to projected growth for primary industries, says the BoN.
Undue volatility of the Namibia dollar effective exchange rate and uncertainty about weather conditions beyond 2018 are other risks to the outlook, it concludes.
Releasing its latest Economic Outlook towards the end of December, the BoN pinned average economic growth for Sub-Saharan Africa this year at 3.8%.
In the past year, the BoN has consistently lowered its domestic growth forecasts for 2019. In December 2017 it expected growth of 3.1%. Last February, this was trimmed to 2.1%. In July, the BoN cut its forecast to 1.9% before reducing it further last month.
The BoN agrees with finance minister Calle Schlettwein, who in his mid-year budget review in October said Namibia’s economic growth for 2018 is expected to be -0.2%, marking the second consecutive year of recession.
The consumer, currently the main driver of the economy, will remain under pressure. The BoN now expects the wholesale and retail sector to grow by 1.8% in 2019, significantly lower than the 3.1% it estimated in July 2018.
Despite the lower forecast, the BoN anticipates recovery in the sector after it being in recession in both 2017 and 2018.
According to the BoN the expected contraction of the sector in 2018 “reflects the general weakness in economic activities and the associated job losses in sectors such as construction and mining”.
“Further, low household spending continues to impact the performance of the sector negatively as reflected in negative growth rates in subsectors such as vehicles and furniture,” the BoN says.
The second biggest driver of the economy – public administration and defence – is expected to show no growth at all in 2019. The BoN estimates this sector grew by -3.6% last year.
Mining, agriculture
The mining sector is likely to be in recession this year and in 2020, registering growth of -1% and -4% respectively. This follows an anticipated bumper growth of 14.4% in 2018.
Lower growth will mainly be on the back of subdued diamond and uranium mining. Both 2019 and 2020 are projected to be negative growth years for diamonds: -5.3% this year and -8.1% in 2020.
Uranium mining is expected to deliver meagre growth of 3.6% in 2019 after booming with an estimated 37.5% last year. The scaling-up of production at Husab boosted growth last year.
Growth this year will however be hampered by Langer Heinrich which was put on care and maintenance in the middle of 2018. In July last year, the BoN forecast growth of 15.6% for uranium mining in 2019.
The BoN feels slightly more upbeat about prospects for agriculture and expects growth of 4.7% in the sector this year. In July it forecast 4.1%. Livestock farming is expected to grow 4.8%, while crop farming and forestry is likely to reach 4.6%.
Construction, manufacturing
Construction is anticipated to exit three consecutive recession years, registering growth in the vicinity of 1.6% in 2019. This is a significant turn-around for the -7.6% the BoN forecast in July.
The central bank says its upward revision is due to an increase in government spending on construction and in the value of buildings completed during the first ten months of 2018.
The BoN expects growth in the manufacturing sector to tick up to 2.3% this year, an upward revision of its forecast of 2.2% in July.
“The improved growth for the manufacturing sector during 2018 and 2019 will be supported largely by grain mill products and beverages. Diamond processing is projected to grow by 11.0 percent and 5.0 percent in 2018 and 2019, respectively,” the BoN says.
Risks
According to the BoN, risks to domestic growth include a slow recovery in international commodity prices, expected slow demand from Namibia’s key trading partners, exchange rate volatility and weather conditions.
“Risks to domestic growth are dominated by the persistently low international price for uranium, which may cause uranium mines to either reduce or completely cease production as their operations remain unprofitable,” the bank says.
It continues: “Low growth in Angola, especially since 2016, has continued to reverberate in sectors such as wholesale and retail trade, education and real estate and business services. Thus, a delay in the actual recovery in Angola and near-zero growth in South Africa are expected to hold back potential recovery in the domestic economy.”
A slowdown in demand for minerals from China due to trade wars may increase the risk to projected growth for primary industries, says the BoN.
Undue volatility of the Namibia dollar effective exchange rate and uncertainty about weather conditions beyond 2018 are other risks to the outlook, it concludes.
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