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Looming US recession likely to cause Namibian trade deficit

2022-06-03  Edgar Brandt

Looming US recession likely to cause Namibian trade deficit

An impending slowdown in the United States of America’s economy will likely result in a Namibian trade deficit with the world’s strongest economy. This means the United States will demand more goods’ imports from Namibia than goods exports. 

If economists’ red flags are correct, the coming US recession - a slowdown in general economic activities for two successive quarters - and the resulting trade deficit means Namibia’s imports will exceed its exports, which is also known as a negative balance of trade. 

Bank Windhoek Market Research Analyst Anton Mushongo yesterday explained that in times of a global economic recession or a slowdown in the United States economy, goods imported by the United States from Namibia are always more than the goods exported by value. 

“Time series’ data from the United States Census Bureau from 2007 to 2022 reveals that almost every time the United States’ economy recorded a slowdown or contraction in its overall economic activities, its demand for goods’ imports from Namibia increased, compared to goods’ exports. For example, Namibia was the United States’ 132nd-largest goods export market in 2019. The United States’ real GDP growth in 2019 was 2.3%. Its goods exports to Namibia in 2019 were valued at US$194 million, representing a 3.9% decrease from 2009,” he stated. 

Mushongo further pointed out that the US goods’ imports from Namibia were valued at US$144 million in 2019, down 56% in 2009. 

“A trade surplus in favour of the United States was recorded in 2019. However, in 2009, marking the end of the Global Financial Crisis of 2008-2009, a trade surplus was recorded in favour of Namibia. In 2020, the United States recorded a contraction in real GDP. The United States’ goods exports to Namibia in 2020 were valued at US$60.1 million, representing a 69% decrease from 2020. Imports from Namibia were valued at US$90.2 million in 2020, down 37% in 2020. A trade surplus in favour of Namibia was recorded in 2020,” the Bank Windhoek analyst noted.  

Warnings about an impending US recession are become more frequent, with the Economist magazine reporting that big banks, prominent economists and former officials are all saying a downturn is a near certainty as the US Federal Reserve wrestles inflation to bring it under control. 

“Three-quarters of chief executives of Fortune 500 companies are braced for growth to go negative before the end of 2023. Bond yields and consumer surveys are flashing red. Google searches for “recession” are soaring,” the Economist cautioned. 

The Washington Post also rang the alarm, reporting about recession warnings from banks and economists as a sudden bout of pessimism hammers financial markets, which in recent weeks spiralled further from the latest highs. 

The international news agency Reuters said the US economy unexpectedly contracted in the first quarter, but noted that domestic demand remained strong as consumer spending showed positive sentiments. “A wider trade deficit mostly drove the decline in real GDP, as imports surged and a slowdown in the pace of inventory accumulation was observed,” the news agency reported.  

Meanwhile, Mushongo said the geopolitical tie between Namibia and the United States is beneficial to both countries, especially as far as the foreign currency stock is concerned. 

“Should the United States’ recession pressures become more pronounced, Namibia will continue to build on its foreign exchange reserves to back its liabilities and influence monetary policy. Foreign exchange reserves are often a nation’s backup funds in an emergency, such as a rapid currency devaluation. Globally, countries use foreign currency reserves to keep a fixed rate value, maintain competitively-priced exports, remain liquid in case of an economic crisis, and provide confidence to foreign investors”, he observed.

2022-06-03  Edgar Brandt

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