The domestic economy contracted during the final quarter of 2025 as weak diamond production, slowing global growth and rising geopolitical tensions weighed heavily on economic activity. This is according to the latest Financial Stability Report released last week by the Bank of Namibia and the Namibia Financial Institutions Supervisory Authority (Namfisa).
The financial stability report is released twice a year and assesses risks facing Namibia’s financial system and broader economy. The report shows that the economy contracted by 0.5% in the fourth quarter of 2025, compared to growth of 2.6% recorded in the third quarter.
The decline was largely driven by weak performance in the mining sector, particularly diamond production, as global demand for natural diamonds remained subdued.
Manufacturing output also weakened due to lower activity in diamond processing, meat processing and basic non-ferrous metals.
“The contraction was mainly driven by the primary industries, owing to the poor performance of the mining sector, particularly the diamond production subsector,” the report states.
Despite the slowdown, the tertiary sector remained resilient and continued to support economic activity.
The central bank projects the economy to grow by 2.6% in 2026, although growth is expected to remain below the country’s five-year average.
According to the report, the primary sector is expected to remain under pressure during 2026 as the diamond industry continues to face weak international demand.
“The diamond industry is expected to remain under pressure due to persistent weakness in global demand for natural diamonds,” the report notes.
The report has been released at a time of growing uncertainty and volatility in the global economy because of the ongoing conflict in the Middle East, rising energy prices and trade tensions between major economies. The International Monetary Fund has revised global growth projections downward to 3.1% for 2026.
Growth in advanced economies is expected to slow further, while emerging markets are also projected to experience weaker economic expansion. According to the report, the conflict in the Middle East is already affecting global commodity prices and supply chains.
“A further intensification of the current war in the Middle East could affect the global economic outlook,” the report warns.
The central bank added that volatile oil prices, supply chain disruptions and weaker global demand continue to pose risks to Namibia’s economy.
“Slower global growth, volatile oil prices driven by geopolitical tensions in the Middle East, and persistently tight global financial conditions continue to pose significant risks to imports, fiscal sustainability, and exchange rate stability,” the report said.
Meanwhile, Namibia’s foreign reserves also declined significantly during 2025. The stock of foreign reserves dropped from N$63 billion at the end of 2024 to N$51.6 billion by December 2025.
According to the report, the decline was mainly caused by government foreign debt repayments, including the redemption of the Eurobond.
Moreover, lower receipts from the Southern African Customs Union and increased import payments also contributed to the decline.
However, the central bank notes that reserve levels remain adequate to support the currency peg between the Namibia dollar and the South African rand.
“Import cover remained above the international benchmark of three months, underscoring Namibia’s continued capacity to sustain the currency peg,” the report said. Also, annual inflation slowed during 2025, declining from 4.3% in 2024 to 3.5% in 2025, largely due to lower transport and housing costs. Inflation in South Africa eased during the same period.
The report continues that inflation in both countries is expected to remain relatively stable during 2026.
Although risks remain, the report notes that investment in technology and improvements in global trade relations could support future growth.
It further states that rapid adoption of artificial intelligence and stronger infrastructure investment could improve productivity and support medium-term economic growth.