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Economic Growth Projections Hold Steady Amidst Policy Changes

By: Justicia Shipena

Despite tightening monetary policy, Namibia will meet its economic growth forecasts this year, according to Floris Bergh, Chief Economist at Capricorn Asset Management.

This comes as Namibia’s central bank chose to maintain the monthly policy rate at 7.75% for the next two months following periods of hikes.

The Bank of Namibia (BoN) released its Economic Outlook for August 2023 this week, predicting that the domestic economy will increase by 3.3% in 2023 and 3.0% in 2024.

“I think the economy will probably achieve a 3.3% percent growth rate this year, in spite of the tightening monetary policy regime,” Bergh said.

However, he believes that Namibia should have lower interest rates next year because inflation is likely to remain quite low.

Namibia’s annual inflation rate continued to fall, reaching a near 1-1/2-year low of 4.5% in July 2023, down from 5.3% in June.

“We will see a bit of relief on the monetary policy side, and I think that will assist Namibia to support the economy but not this year yet unfortunately,” he explained further.

Bergh said Namibia is likely to accomplish this growth since most sectors of the economy are improving, and that one of the major drivers would be the mining industry, which is seeing increased activity.

He said it is difficult to predict what role SME would play in fulfilling this projection.

“It is impossible to say what exactly their share is in the different sectors.”

According to Kazembire Zemburuka, the BoN’s Director of Strategic Communications and International Relations, Namibia’s GDP growth is expected to decelerate in 2023 and 2024.

“The real GDP growth is estimated to slow to 3.3% in 2023 and 3.0% in 2024,” he said.

Zemburuka added that the estimated growth for 2023 has been revised upwards from 3.0% published in the March 2023 Economic Outlook update.

The revision Zemburuka said is mainly based on better than earlier anticipated performance for construction, hotels, restaurants, wholesale and retail trade, amongst others.

He further said the risks to domestic growth are predominantly in the form of ongoing monetary policy tightening globally, high costs of key import items and water supply interruptions affecting the coastal towns.

“Major central banks around the globe continue to tighten monetary policies and that is anticipated to result in a global slowdown in 2023 and 2024, and hence reducing external demand for Namibia’s exports,” he said.

The conflict between Russia and Ukraine would certainly last longer, resulting in increased prices for related commodities.

Other significant dangers to domestic growth are water supply delays that continue to affect mining output along the coast, potential spillover of South African energy cuts to Namibia, and uncertain weather conditions that are anticipated to significantly affect crop production in Southern Africa, he said.

According to the Bank of Namibia, growth in Sub-Saharan Africa would slow in 2023, owing primarily to high inflation and stricter monetary policy.

“Economic growth in the region is projected to decline from 3.9 percent in 2022 to 3.5 percent in 2023 before improving to 4.1 percent in 2024,” said the central bank.

The bank attributed the fall in the predicted growth prognosis for 2023 to persistent inflation, which is eroding consumer spending power and increasing social pressures, as well as excessive public debt in certain key nations.

As a result, it stated that the risks to the global outlook continue on the downside, owing principally to the Russia-Ukraine conflict, rising inflation, and tighter financial and monetary conditions.

The protracted Russian-Ukraine war and impending debt crisis caused by tightening global financial conditions continue to dominate the downside risks to the global economy, according to BoN.

Furthermore, BoN warned that the delayed recovery in China, which may impede global trade growth and commodity price recovery, poses additional risk to the outlook.

Justicia Shipena

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