Budget drought, arid growth

BoN paints red picture

01 March 2018 | Ekonomie
Jo-Maré Duddy – Slashed government expenditure is bound to hurt the economy more this year than it did in 2017, the latest forecast report of the Bank of Namibia (BoN) shows.

According to the BoN’s Economic Outlook Update, released Tuesday, the recession in the public administration and defence sector is likely to worsen in 2018. The central bank real growth forecast for the sector for 2017 is -0.5%. For this year it is -1.3%, while -0.8% is expected for 2019.

As one of the major contributors to gross domestic product (GDP), negative growth in the public administration and defence sector has a huge impact on overall economic growth.

The BoN now expects overall real growth of 1.4% this year, down from its December forecast of 2.2%. In March and July last year, the central bank pinned its growth hopes at 3.8%. Real growth is adjusted for inflation.

The BoN’s report is an indication of just how tight finance minister Calle Schlettwein intends to hold the purse strings in his pursuit of fiscal consolidation. Schlettwein is expected to table the 2018/19 Budget next week.

In nominal terms – figures which aren’t adjusted for inflation – the public administration and defence sector is currently expected to contribute 9.99% to the GDP this year. The BoN’s three previous reports estimated a GDP contribution of between 10.49% and 11.07%.

Moneywise, the central bank expects the sector to pump about N$18.15 billion in nominal terms into the economy this year. This is about 10% less than the nearly N$20.2 billion it expected in July 2017 and a drop from the N$19 billion plus it forecast in February and December. The average inflation rate for 2017 was 6.2%.

Construction, retail

The effect of fiscal consolidation is also evident in the construction sector, which the BoN now believes grew by -28% in 2017. In the beginning of last year, the central bank still expected a contraction of 12%.

The BoN expects construction to spend 2018 in recession too – its third consecutive year in the red. A contraction of 14.9% is forecast for this year. The sector is unlikely to escape recession next year, with the BoN expecting growth of -7.1%.

The overall recession, coupled with less government expenditure, has also eroded the overall spending power of Namibians. This is clear from the BoN’s growth forecasts for wholesale and retail trade.

In the beginning of 2017, the central expected this sector to grow by 4.9% last year. It now calculates a contraction of 6.4%. Although expected to pick up, the central bank is forecasting another recession year for wholesale and retail this year, with growth of -2.5% anticipated.

Besides public administration and defence, construction, as well as wholesale and retail, the only other sector the BoN expects a contraction is crop farming and forestry.

Soortgelyk

 

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