13 December 2018

Namibia: Economy Not Out of the Woods Yet

ANALYSTS believe the Namibian economy will not recover from the current recession anytime soon, even though the country's neighbour South Africa finally recorded growth of 2,2% during the third quarter of 2018.

The local economy has been in a recession for almost three years, and in the second quarter of 2018, the economy recorded a contraction of 0,2%. Moreover, the Namibia Statistics Agency is set to announce the gross domestic product (GDP) figures for the third quarter of 2018 today.

In its report titled the 'Namibian outlook 2019: in the eye of the storm' released last week, Simonis Storm (SS) amended its GDP forecast for 2018 to -0,8% from 0,6%.

"This is on the back of a slowing agricultural and manufacturing sector, coupled with lower than expected taxes less subsidies. We also reduced our 2019 GDP forecast to 0,7% (previously 1,8%) before it increases to 1,7% in 2020 (2,5%). Mining and construction are the main contributors to the expected growth," SS said.

Meanwhile, the Economic Association of Namibia (EAN)'s research associate, Klaus Schade, said the local economy is still expected to contract in the third quarter, similar to the first two quarters.

He reiterated that Namibia is expected to experience a second year of economic contraction.

In an emailed response to The Namibian, Schade said: "The positive growth of the South African economy is not expected to have much impact on the Namibian economy since the contraction in the first half of the year was mainly caused by water shortages that affected the output of the agricultural sector. Nevertheless, it is encouraging to see the SA economy rebound."

Conversely, Schade said what is more important than the overall growth rate are the sectors which expand, and whether the expansion contributes to job creation.

"Job creation will not only benefit the retail trade sector, but will contribute to poverty alleviation and the reduction of income inequality," he added.

SECTOR NEWS

Schade said additional recovery in the mining sector is expected in the third quarter of 2018 as a result of the Husab mine reportedly meeting its production target.

He added that a reversal of the strong recovery in the construction sector that might be expected during the first two quarters is contrasting because of the government's reallocation of funds for capital projects to recurrent expenditure.

"The wholesale and retail trade sector will remain under pressure because unemployment and rising inflation will limit the disposable income of consumers. Likewise, due to fiscal consolidation, the three sectors dependent on the government (public admin, health, education) are expected to contract further," he said.

Prospects for 2019 are mixed as the diamond mining sector is expected to contract, as indicated in a recent statement by De Beers. Increases in other mining sub-sectors, such as uranium, would not level out the decline.

"After ironing out challenges with the Central Procurement Board, we can expect an increase in construction activities, while the additional employment of teachers taking effect at the beginning of 2019 should reverse the contraction in the education sector.

"The forecasts for the agricultural sector are not too promising because of the anticipated El Niño effect, and that will have an impact on the manufacturing sector, in particular meat processing. Overall, we should see positive growth rates because we are emerging from a low base," the research associate said.

PSG Namibia's head of research, Eloise du Plessis, said they project growth rates for 2018 and 2019 to stand at -0,4% and 2,1%, respectively.

In a response to The Namibian, she said the industrial sector has been stronger due to better growth in mining and construction, but growth for the manufacturing industry is lower.

"Agriculture has struggled due to weaker growth in grain, livestock and fishery production. Retail and wholesale business continues to suffer which drags down the services sector," said the researcher.

Charmaine@namibian.com.na, twitter: Char_Ngatjiheue.

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