7 January 2013

Namibia: Domestic Economy Continues Expansion in 2013

Windhoek — Local analysts are predicting an expansion in economic growth this year despite the risk posed by inflation and the higher than desirable consumer credit growth numbers.

Inflation and higher consumer credit could cause the Bank of Namibia to take corrective actions to curb the growth, but nevertheless the local stock brokerage, Simonis Storm, believes the economy will expand at rates similar to what was witnessed in recent years although at a slightly slower rate.

In its economic outlook for 2013, Simonis Storm forecast a 4.2 percent GDP growth for 2013, relative to the estimate of 5 percent for 2012 and the realised 4.8 per cent in 2011. Simonis Storm said the domestic economy has held up relatively well in the past few years, and 2013 is expected to produce results similar to previous years.

"Mining output and the short-term intervention programmes by the fiscus will aid economic growth in 2013", said a company report released last week. The mining sector is expected to drive economic growth in 2013, despite the marginal underperformance anticipated for selected resources.

The fiscus is also expected to play a significant role through short intervention programmes in the various segments of the economy. Contrary to the historical approach where its economic outlook was based purely on consultation with economic participants and data analysis, this year the company also conducted an economic sentiment survey with key stakeholders in the economy.

The survey results portray how participants perceive various macro-economic variables and how these will fare in 2013 and thereby steer economic growth in its perceived direction. Although the degree of openness has declined from the historical high level of 93 percent in 2000, at 78 percent the domestic economy remains open from the perspective of trade, relative to output.

Therefore, to a certain extent, local growth will be a function of how other economies grow, especially Namibia's trading partners. Another determinant will be how the exchange rate moves, for which Simonis Storm foresees limited weakness in the exchange rate between the US dollar and Namibian dollar. On international growth, the company remains cautiously optimistic, especially considering that despite encouraging data from the US and selected emerging markets Europe continues to pose a downside risk.

With economic growth remaining below desirable levels, when considering other economic objectives, Simonis Storm predicts that interest rates will remain low. The premise is based on the assumption that the significant threat posed by selected drivers will ease.

"Specifically, the upward pressure on overall inflation, primarily due to food prices, will peak in the first quarter of 2013. Also, growth in credit extension will ease as we have started seeing such signs in recent data. In light of this we foresee the accommodative monetary policy stance to continue and therefore expect interest rates to remain low for an extended part of 2013", reads the report.

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