Economy slows in third quarter

Economy slows in third quarter Mining, agriculture and construction contracts Economic growth recently slowed over two consecutive quarters, indicative of a 'technical' recession. The domestic economy continued to display weak performance, year-on-year, during the third quarter of 2016, reflecting slowed activities in the mining, agriculture, manufacturing and construction sectors, according to a statement released by the Bank of Namibia.

“The activities in the mining sector slowed down, mainly due to operational factors, while drought and health requirements on live animals exported to South Africa constrained the agricultural sector. Similarly, activities in the construction sector continued to slow down, primarily due to the fiscal consolidation efforts of government and the completion of major construction projects in the private sector,” the central bank said.

On the monetary policy front, the Monetary Policy Committee maintained the repo rate unchanged at 7% during the third quarter of 2016, supporting economic growth in light of slow and fragile recovery in the economies of Namibia's trading partners. “During the same period, the growth in money supply (M2) contracted, stemming from a decline in deposits of corporate sector, coupled with low credit extended to the private sector. Growth in credit extended to the private sector moderated over the same period. The moderated growth was reflected in the decreased borrowing by both the household and corporate sectors during the review period,” the statement read.

“On the fiscal front, government's total debt increased, year-on-year, as reflected in both domestic and foreign borrowings, mainly the EuroBond. As a result, government total debt as a percentage of gross domestic product rose to 39.6% at the end of the second fiscal quarter of 2016/17 from 28.2% at the end of the corresponding quarter of 2015/16. In contrast, government loan guarantees as a ratio to gross domestic decreased to 4% from 4.4% over the same period and remained well below the threshold of 10%.”

With regards to the exchange rate, the bank is of the view that “the Namibian dollar depreciated against most if the major trading currencies on a yearly basis but appreciated on a quarterly basis during the third quarter of 2016. The yearly weakening of the domestic currency in relation to the US dollar and euro could be attributed to South Africa's weak economic outlook. On the other hand, South Africa's trade surplus which eased pressure on the country's current account deficit contributed to the strengthening of the rand against the trading currencies, quarter-on-quarter during the review period.”

Going forward the status seems to be improved. “The global economy is projected to grow 3.4% in 2017. The growth is projected be on account of positive developments in both emerging markets and developing economies. Risks to the outlook however remain and include the uncertainty regarding the impact of the Brexit negotiations which is unclear, low commodity priced and geopolitical tensions.”

STAFF REPORTER