Economy expected to have contracted in 2021

PHILLEPUS UUSIKUDespite the third quarter of 2021 registering positive growth of 2.4% year-on-year, analysts expect the domestic economy to have shrunk. The statistics are yet to be released.According to Shelly Louw, research analyst at PSG Namibia, real gross domestic product (GDP) in the first three quarters of 2021 shrunk by 0.6% compared with the same period in 2020, hence, she believes that another annual economic contraction is on the cards.“Looking ahead, we forecast real GDP growth will bounce back to 4.2% in 2022 thanks to new mining activities, increased investment in the energy sector, and reduced pandemic-related restrictions,” the analyst said.The expansion of domestic port handling, railroad, mobile network, and power generation capacities are also expected to drive the economy.Furthermore, increased vaccinations in 2022 should lead to reduced travel restrictions and a gradual recovery to pre-pandemic levels of travel and tourism, she said.The 4.2% growth forecast for 2022 is 0.9 percentage points more than what the Bank of Namibia (BoN) predicted in their economic outlook in December 2021.SectorsThe agricultural sector will continue to be burdened by depleted livestock numbers that will take years to rebuild following successive years of drought.Moreover, the livestock industry suffered further blows last year with the detection of a new strain of foot-and-mouth disease and devastating veld fires.While rainfall has generally improved over the past two years, crop and livestock production remains vulnerable to irregular downpours, Louw said.Moreover, the industrial sector is set to benefit from planned expansions of existing diamond, gold, and tin mining operations, the possible resuscitation of mothballed zinc, copper, and uranium mines and the development of new ‘battery mineral’ mines. The government is also aiming to leverage the country’s excellent solar power and green hydrogen potential, she pointed out.The services sector will continue to be hamstrung by frugal fiscal expenditure, deteriorating real disposable incomes, higher unemployment, and high consumer indebtedness. Tourism already lagged ahead of the pandemic due to poor regional growth and has suffered immensely due to coronavirus-related travel restrictions. “We expect tourism will recover gradually to pre-pandemic levels by 2024,” she said. PRICE MONSTERConsumer price inflation accelerated towards the close of last year, driven by higher domestic fuel pump prices which reflect the sharp rise in the global oil price.Annual inflation in December 2021 stood at 4.5%, up from 2.4% recorded in December 2020 an increase of 2.1 percentage points.Elevated global food prices due to La Niña related droughts in South America and Asia will also put upward pressure on local food price inflation. “Furthermore, we project the local currency will weaken in 2022 amid global monetary policy tightening and risk aversion, inducing further inflationary pressure. We forecast inflation to rise to 4.7% this year from 3.6% in 2021,” Louw said.-phillep@nmh.com.na

Economy expected to have contracted in 2021

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