To reach a forecasted 2.5% growth rate during 2022, the domestic economy’s quarterly Gross Domestic Product (GDP) will need to increase by between 2% and 3% on average per quarter. This is according to Simonis Storm Securities’ quarterly economic review dissecting the second quarter of this year.
“With economic growth averaging 5% for the second quarter of 2021 (2Q2021), 3Q2021 and 4Q2021, the remaining quarters of 2022 would be coming from a higher base. These statistical base effects could also lead to lower growth rates recorded for the second, third and fourth quarters of this year,” the review stated.
Simonis Storm Securities (SSS) noted that the second quarter of 2022 experienced a 75bps repo rate hike (compared to 25bps in 1Q2022); a weaker rand, an average of N$15.59 against the US dollar (compared to N$15.25 in 1Q2022); higher local food and fuel prices (N$19.13/litre compared to N$16.25/litre in 1Q2022); and a mild wave of Covid infections compared to previous waves in Namibia.
“Both private and public consumption spending trended upwards in 1Q2022, however, we expect private consumption to edge lower from 2Q2022 onwards.
This will mainly be because of higher prices in crucial budget items that weigh on household spending (which accounts for about 70% of GDP). While net investments (investments less depreciation of capital assets) increased in 1Q2022, rising interest rates and input costs in most sectors could weigh on net investment growth going forward,” the SSS review stated.
The local stock brokerage pointed out that sectors supporting the 2.5% domestic growth forecast for 2022 include financial services, ICT, mining, agriculture and tourism, proxied by hotels and restaurants.
SSS added that Namibia’s key export commodities remain diamonds, copper and uranium, which are still priced at short-term highs, but added this has not supported the trade balance. This is because for the year to date, Namibia recorded an average trade deficit of N$3.3 billion each month as a result of increasing import values due to a rise in petroleum fuel prices and a weaker rand exchange rate.
SSS also noted that for the first quarter of this year, the domestic economy expanded by 5.3%, mostly because the figure lifted from a low base given the first quarter of 2021, contracted by 4.9%.
“After Botswana, Namibia recorded the second highest growth rate in 1Q2022, compared to selected developing countries and emerging markets. However, growth could have been supported by businesses in various industries having invested in automating certain processes and functions within their daily operations,” SSS stated.
Meanwhile, The Bank of Namibia (BoN) and the International Monetary Fund (IMF) revised 2022 GDP growth forecasts downward from 3.4% and 3.6% to 3.0% and 2.8% respectively. Using their high frequency data, BoN sees positive developments within the agriculture, forestry and fishing, and diamond and uranium mining sectors. Risks to the downside as highlighted by BoN remain additional, Covid variants leading to travel and other restrictions, a prolonged conflict in Ukraine leading to higher food and fuel prices and continued disruptions in water supply at coastal towns which negatively impacts uranium mines.
Ratings downgrade
Meanwhile, Fitch downgraded Namibia from BB to BB- at the end of June 2022 in light of weak economic prospects owing to inflationary effects from the conflict in Ukraine, rising energy prices and tighter financial conditions globally.
Fitch sees GDP growth at 2.8% for Namibia in 2022, driven by the mining sector and mild recoveries in the secondary and tertiary industries. It forecasts inflation at 6.1% for 2022 and sees risks of fiscal slippages if government supports low-income households. Fitch also expects the current account deficit to widen to 11.3% of GDP in 2022 (compared to 9.2% of GDP in 2021) because of rising global petroleum fuel prices boosting the import bill.
“As Namibia continues to be downgraded by both agencies who cover our country, Namibia is now eight and nine notches above ‘default’ status according to Moody’s and Fitch respectively. The faster pace of sovereign credit downgrades since 2016 correlates with the time when government initiated its fiscal consolidation strategies and the local economy endured an economic slump which was exacerbated by the pandemic,” the SSS review stated.
In its latest review, SSS retains the view that government can only reduce its spending and attempt to bring debt to sustainable levels if it creates a pro-business policy and a regulatory environment which would allow private sector led economic growth.
“Without this efficient handover of the economy and government reducing its spending, it is a no brainer to consistently see weak economic growth rates, slow job creation and worsening junk status ratings,” SSS stated.
Inflation
The annual inflation rate, as released last week by the Namibia Statistics Agency (NSA) show that June 2022 stood at 6%, up from 4.1% recorded in June 2021, representing an increase of 1.9 percentage points. This was the highest annual inflation rate recorded since July 2017.
The average annual inflation rate for June 2021 to June 2022 stood at 4.4% while the 12-month average annual inflation rate from August 2021 to June 2022 was estimated at 4.5%.
The main contributors to the annual inflation rate for June 2022 were Transport (2.7 percentage points); food and non-alcoholic beverages (1.3 percentage points); alcoholic beverages and tobacco (0.8 percentage points); housing, water, electricity, gas, and other fuels; and furnishing, household equipment and routine maintenance of houses each contributed (0.4 percentage points).
“On a monthly basis, Namibia recorded inflation rate of 1% in June 2022 compared to 0.1% registered during the preceding month. The growth in the monthly inflation rate was mainly caused by transport, which augmented by 4.1% compared to a deflation of 1.2% recorded a month earlier,” the NSA stated.
The annual inflation rate for goods was estimated at 8.7% while services stood at 2.2%.