Global slowdown to hit domestic economy hard…as social infrastructure investment mooted to offset impact

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Global slowdown to hit domestic economy hard…as social infrastructure investment mooted to offset impact

While global economists continue to debate the possibility of a worldwide recession, Namibia has been advised to consider increasing investment, particularly into social infrastructure, rather than increasing operational expenditure. 

This includes classrooms, connecting schools and health facilities to water, sanitation, electricity and the internet.

This, said local economist Klaus Schade, would go a long way in countering external effects that have seen the global economy, still reeling from the pandemic and the Russian-Ukraine conflict, facing an increasingly gloomy and uncertain outlook. In fact, the International Monetary Fund (IMF) this week cautioned that many of the downside risks it flagged in its April World Economic Outlook have begun to materialise.

According to Schade, the debate still continues whether or not there will be a global recession but he confirmed there is no doubt about a slowdown of activities in major economies, such as the United States of America (USA), China and the European Union, due to a variety of factors. 

“As a commodity exporting country, Namibia will feel the impact. The USA and China are the main markets for diamonds and therefore a slowdown in economic activities in these countries will have an impact on the demand for luxuries, such as diamonds, and on the prices,” said Schade. 

Responding to questions from New Era, the economic analyst added that although Namibia is currently not a major producer of copper, the drop in copper prices by about 20% since the beginning of 2022, will have an impact on the domestic sector.

He further said it could have an impact on the transport sector, specifically if copper supplies from Zambia and the DRC decline. 

Said Schade: “The decline in copper prices in particular will put further pressure on Zambia’s fiscal space and can affect the honouring of its debt obligations.” In addition, Schade noted that gold prices have also dropped, which he warned will definitely have an impact on the profitability of gold mines and hence on corporate tax payments. 

However, he pointed out that: “There is still room in Namibia’s taxation system to strengthen domestic resource mobilisation, which could finance the necessary investment.” 

Meanwhile, the IMF states that governments should devise policies to address specific impacts on energy and food prices for those most affected without distorting prices. In its latest outlook released this week, the IMF warned that global inflation is a major concern as the world’s three largest economies are stalling which could result in dire consequences for the global outlook. 

“Higher-than-expected inflation, especially in the USA and major European economies, is triggering a tightening of global financial conditions. China’s slowdown has been worse than anticipated amid Covid-19 outbreaks and lockdowns, and there have been further negative spillovers from the conflict in Ukraine. As a result, global output contracted in the second quarter of this year,” read the latest IMF economic outlook. 

As such, the international finance organisation has forecast that global growth is expected to slow from last year’s 6.1% to 3.2% this year and 2.9% next year. 

In the United States, reduced household purchasing power and tighter monetary policy will drive growth down to 2.3% this year and 1% next year. In China, further lockdowns, and the deepening real estate crisis pushed growth down to 3.3% this year—the slowest in more than four decades, excluding the pandemic. And in the Euro area, growth is revised down to 2.6% this year and 1.2% in 2023, reflecting spill overs from the conflict in Ukraine and tighter monetary policy,” read the IMF report. 

The IMF also confirmed that global output contracted in the second quarter of this year, owing to downturns in China and Russia, while US consumer spending undershot expectations. 

“Global inflation has been revised up due to food and energy prices as well as lingering supply-demand imbalances, and is anticipated to reach 6.6% in advanced economies and 9.5% in emerging market and developing economies this year. In 2023, disinflationary monetary policy is expected to bite, with global output growing by just 2.9%,” the IMF stated. 

The international fund further mentioned that with increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers. While the IMF cautioned that tighter monetary policy will inevitably have real economic costs, this could be exacerbated if delayed. “Targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the pandemic and the need for a disinflationary overall macroeconomic policy stance, such policies will need to be offset by increased taxes or lower government spending. Tighter monetary conditions will also affect financial stability, requiring judicious use of macro-prudential tools and making reforms to debt resolution frameworks,” the IMF stated.