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Namibia technically on the brink of recession – Kavari

Home Business Namibia technically on the brink of recession – Kavari

The Namibian economy finds itself at a critical and precarious juncture, as the days of 5 to 6 percent growth rates – spurred on by accommodative fiscal and monetary policy – are no more.

This is according to Suta Kavari, investment strategist at Capricorn Asset Management (CAM), who points out that the deceleration in economic growth was confirmed by the Namibia Statistics Agency (NSA), which announced that growth contracted by 1.2 percent during the second quarter of 2016.

It is the first contraction since quarter one of 2013. The -1.2 percent reading was considerably lower than the 7 percent growth recorded during the same period in 2015. Also, first quarter growth has since been revised down to 3.4 percent, from an initial reading of 3.5 percent.

“While we don’t find ourselves in a recession yet, another negative reading in the third quarter could see us slip into a technical recession,” Kavari warned.

A technical recession is defined as two consecutive quarters of negative economic growth as measured by Gross Domestic Product. The latest figures from the NSA confirmed the economy’s marked and sharp slowdown and points to a continued downward trend in economic activity going forward.

“With the taps almost running dry… the downside risks we face at the moment cannot be overstated, and they are mounting… Growth during the second quarter of this year was constrained by water-intensive industries, especially the construction and manufacturing sectors, which have been reeling from heightened water insecurity,” said Kavari yesterday in his daily update on the economy, called The Morning Brief.

He noted that having recorded a growth rate of 0 percent during the first quarter of 2016, growth in the construction sector slumped into negative terrain, contracting by 19.9 percent during the second quarter of 2016.

He also noted that the value of buildings completed declined by 42.7 percent during the second quarter, compared to growth of 103 percent during the same period in 2015, and that the value of government construction grew by 6.1 percent during the second quarter, compared to a strong growth rate of 68.6 percent recorded in the corresponding quarter of 2015.

Kavari said the manufacturing sector’s 9.4 percent decline was mainly attributed to poor performance in the non-ferrous metals, beverages and grain mill production subsectors.

The manufacturing of beverages, which contracted by 7.3 percent, has been negatively affected by the worsening drought, which forced Namibia Beverages to close some production plants in the capital.

“The only glimmer of hope in the second quarter GDP reading was the recovery in agriculture, which, while recording a decline of 5.2 percent, was a marked improvement from the 18.6 percent contraction recorded during the same period last year. The recovery in the sector is attributed to both crop and livestock farming,” he said.

Having recorded growth of 5.3 percent in 2015, the local economy is expected to expand by a mere 2.5 percent in 2016, amid the slowdown in construction activity, fiscal consolidation and what Kavari terms “an uncertain policy environment”.