Reduced growth in agriculture/mining to harm overall economic growth

PSG Namibia has lowered its growth forecast for the local economy in the 2018 financial year from a 3.1% high to a 1.9% low as growth in the agriculture and mining sectors is anticipated to weaken.

However, economic growth in the medium term is expected to be favourable.

Says the firm, “Mining and manufacturing exports should be supported by synchronised global economic growth, the construction sector should benefit from multilateral development loans as well as an uptick in foreign direct investment (FDI) and consumer spending should recover in line with a broader recovery in the economy.”

Although the economy’s current account deficit tapered in 2017, at a much faster pace than PSG had projected earlier, thanks mainly to a much lower import bill due to weak domestic demand, “The external balance is forecast to deteriorate somewhat in 2018 as imports recover on the back of higher international oil prices as well as improved domestic demand and Southern African Customs Union (Sacu) revenues are expected to fall”.

The fiscal deficit is also projected to narrow this year due to efforts to cut government spending and supported by mining and tax revenues.

PSG remains doubtful, however, about the finance ministry’s ability to reach fiscal targets.

“We forecast Namibia’s budget deficit to narrow to 4.8% of GDP in the 2018/19 fiscal year (FY) from an estimated 5.2% of GDP in the 2017/18 FY. However, gross government debt is projected to rise to roughly 46% of GDP in 2018/19 FY from nearly 41% of GDP in 2017/18 financial year,” says PSG.

The firm further expects the central bank to keep the repossession rate untouched at the current 6.75% for the remainder of the year while inflation has fallen sharply from 8.2% year on year in January 2017 to 3.6% in April this year.

This was due to food inflation which moderated, lower rental costs and a stronger currency.  

“Although the Namibian currency’s strong rally on the back of positive political developments in South Africa (the Namibian dollar is pegged on par with the rand) in December 2017 has improved the inflation outlook, inflation risks, stemming from the possibility of currency depreciation and higher oil prices, are tilted to the upside,” says the firm.