30 November 2012

Namibia: Threat of Interest Rate Increase

Windhoek — Interests rates could go up next month if Namibians do not rein in their spending on vehicles and other items, and inflation continues unabated.

Consumers went on a spending spree in October, buying cars, borrowing money and extending their homes, according to the IJG Business Climate Index. On a more positive note, it is believed that such spending, along with good performance in the construction industry, pushed up local economic indicators by 35 basis points during the month of October.

There are concerns however of inflation soaring in December if consumers do not rein in their spending. "Consumers were back on the front foot again - buying more cars, borrowing more money and extending their homes - and thus taking advantage of favourable interest rates which are at an all time low.

"The index does however note that inflation remains a concern and interest rates might start climbing as early as December if inflation continues unabated and consumers continue to splurge on new cars," noted the IJG Business Climate Monitor for October 2012.

The IJG Business Climate Monitor is compiled by the Institute for Public Policy Research (IPPR).

Building plans approved during October increased by a substantial 340 percent with construction plans worth N$577 million that were mainly additions to existing residential properties.

As a result, the prospects for the construction industry are good for the next 12 months. Although the export index was flat, there were early signs of headwinds ahead as international leading indicators continued to contract, indicating difficult business conditions abroad.

These depressed conditions have already started to show in the metal markets where unweighted futures and spot prices fell 7 percent through October, while uranium prices fell 11 percent, which is the lowest level since June 2010. There was some glimmer of hope for exporters as the Namibian Dollar weakened and thus softened the blow from the lower export prices.

Fish exporters were fortunate with smaller hake prices jumping by 78 percent through October, while beef prices continued to strengthen on the back of supply tightness and good demand, a trend which is expected to continue leading up to the festive season.

Investment was on the back foot despite the strong showing of the NSX local index that grew by 8 percent month on month. Generally the investment index was down because of the downturn in commercial vehicle sales and a decline in the building plans actually completed during October.

But given the healthy state of the leading indicator, the overall outlook for the economy remains favourable if most of the building plans are carried out.

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