Growth will recover in 2018- IBM analysts … as final quarter 2017 remains subdued

South Africa based economic think tank, IBM Research, has predicted Namibia’s economy to register a notable recovery by the turn of the 2018 financial year citing growth in mining, manufacturing and agriculture.

This is also in line with the latest Fitch ratings which despite the downgrade, has projected a stable outlook.

“We expect a recovery in Namibia's growth in 2018 due to our forecast of sustained growth in mining, alongside the consequent increase in fiscal revenues. Namibia's economy will likely remain weak in Q417, as we believe fiscal constraints, exacerbated by the August downgrade of the government's credit rating, will weigh on key sectors of the economy and counteract some of the effects of growth in mining,” says IBM.

The predicted weakness in the final quarter is driven, in the main, by fiscal constraints although in 2018 the increasing revenues from mining will enable the government to adopt a slightly more expansive fiscal policy.

The public administration sector, second largest of the economy, and construction which posted some of the biggest declines in real GDP in Q2017 due to fiscal constraints are predicted to remain weak.

This weakness is driven by the downgrade of the Namibian government's credit rating to junk status in August 2017, as the increased cost of borrowing will restrain the government's considerable financial support for state-owned enterprises and impede any new investments in construction projects.

IBM expects government spending in 2018 to recover somewhat due to increasing revenues from the mining, agricultural and retail sectors, offering some relief to the public administration and construction sectors.

“Namibia's Q217 GDP data has shown another quarter of contraction, significantly underperforming IBM’s expectations, leading it to revise downwards its forecast for real growth in 2017 to 0.2% and to 3.5% in 2018,” the firm says.

Growth estimates by IBM for 2017FY had been inspired by prospects of increased mining output.

“But we now expect that the impact will be muted by the unexpectedly large contraction in other sectors. In 2018 we still maintain a positive outlook as mining and other sectors will see greater output, bolstering fiscal revenues and supporting demand in the wider economy,” says IBM.

Fast forward to 2018, IBM affirms that uranium mining will be the main engine of growth over the coming quarters.

“The mining sector is seeing robust growth, posting 25.8% y-o-y growth in Q217, which is being led mainly by increases in uranium and diamond production. As mining output increases, it will mitigate some of the impact from other sectors that are in decline. We are expecting that the Husab uranium mine will reach full production in the coming quarters, which will see a doubling of uranium production year on year and make Namibia the world's third largest uranium producer,” says IBM.

The firm also sees more light from diamond mining which it expects to continue seeing robust output, as offshore diamond mining is boosting production by complementing more long-standing onshore mines.

“This has already had an effect, manifested in a three-year high in diamond production in Q117. We expect that the ongoing increase in mining output in the next year will be the chief motor behind a recovery in headline growth in 2018,” says IBM.

Manufacturing and agriculture are also projected to see stronger output in the coming quarters which will gradually drive increases in income for a significant proportion of the labour force.

IBM says this will consequently bolster demand in other sectors of the economy such as retail and real estate and in turn bolster their output.

“The agricultural, manufacturing and mining sectors employ 28.9% of the workforce (according to the statistics agency's 2016 labour report) and we expect that all will see greater strength in the coming quarters”

“We expect that the eventual boost in income for this significant part of the labour force will bolster wider consumption, though any increase in income for those employed in these sectors will come gradually,” says IBM.

While retail in particular showed a marked decline in Q217, IBM expects that the eventual increase in consumption demand in 2018 will see some recovery in retail, greater growth in real estate and a boost to the hospitality sector.

“This will help support the gains made in mining and see headline growth head higher in 2018,” says IBM.