FNB Namibia revises annual GDP growth outlook

08 Aug 2013 08:00

The local economy has expanded by 2.8% in 1H13 and is expected to pick up momentum to 2H13, according to FNB Namibia senior manager research and development, Daniel Motinga.

Motinga has revised the annual gross domestic product (GDP) growth outlook downwards from 4.5% to 3.9% in the recent monthly African report by RMB on global market research.

“We believe the economy expanded by 2.8% in 1H13 and expect most of the momentum to be in 2H13. Our biggest concern is the sluggish pace of private consumption growth, which registered an 8% increase in 2012. We forecast a slight improvement to 8.3% in 2013, largely supported by tax relief. We are also becoming less bullish on investment spending growth given the large base established in the prior year,” Motinga states.

He says investment expenditure rose by 19.7% in real terms last year; a feat impossible to replicate this year, particularly as there was a deceleration in private sector investment expenditure. Given the demand, Motinga also says imports would detract from growth as they have continued to expand near 12% year on year compared to exports, which were likely to recover from 4.7% year on year in 2012 to 8% in 2013.

"Over the medium-term, we see growth quickening from 2014 onwards as investment spending recovers, particularly in the construction space. Our view of flat interest rates over the medium-term should also entice businesses to draw down on facilities much more aggressively and encourage the creation of capacity for future growth,” he explains.

Motinga believes agriculture will, this year, contribute significantly to economic growth while uranium production steadily picks up.

In his report, Motinga states inflation stood at 6.2% in June, which was lower than the 6.3% forecast on account of the better-than-expected performance in the food inflation component: “Most of the pricing pressure comes from the services component, which suggests the pricing power has probably shifted from goods producers to service providers. Services inflation accelerated to 9.0% y/y from 8.5% in May compared to goods inflation, which stood at 4.6%. However, overall inflation decelerates on a monthly basis from 0.2% in March to - 0.2% in June. Food inflation quickened as expected, though less strongly than anticipated, coming in at 7.6% in June compared to 7.4% in May. Transport inflation re-accelerated in July as fuel price effects filter through.”
Bank of Namibia (BoN) believes inflation is currently at tolerable levels and that the monetary policy should continue to support growth, given the external risks on the growth environment. But Motinga says, “Although we share the bank’s sentiments, we interpret the statement to mean the current policy, characterised by low
interest rates, will prevail this year. We think the current rand volatility could persist, reducing the likelihood of an interest rate adjustment this year. Therefore, we stick to our core view of flat rates for 2013 and 2014. As always, there are downside risks to our view but we do not attach significant probabilities to these outcomes on account of the inflation risks, which might manifest in the anchor economy.”