2016-04-05Staff Report 2 According to a preliminary reading by the Namibia Statistics Agency (NSA), the Namibian economy slowed to 5.7 percent in 2015, compared to 6.3 percent posted in 2014. While significantly overshooting our 4.4 percent estimates, the Gross Domestic Product (GDP) print did confirm the economy’s deceleration, albeit at a much slower pace. The print also confirmed what Finance Minister Calle Schlettwein alluded to in his budget speech, that the slowdown in the South African economy has a significant bearing on the outlook for the domestic economy. Growth in South Africa remained weak in 2015 and is widely expected to slow further in 2016. The weak outlook has largely been on account of sharply lower agricultural production due to the persistent drought and protracted fall in the manufacturing sector. Mirroring the crippling drought conditions currently being experienced throughout the southern African region, agricultural production contracted sharply. Agricultural production contracted by 10.3 percent in 2015, having recovered by 11.1 percent in 2014 from the devastating drought of 2013. Though still in negative territory, mining and quarrying recovered in 2015, boosted by a rebound in metal ores and other mining and quarrying. Growth in mining and quarrying was largely flat at -0.1 percent in 2015, up from -6.2 percent posted in 2014. The continued slowdown in the global economy, particularly major markets for diamonds, led to a crash in demand for and the price for diamonds, and diamond mining contracted by 3.4 percent in 2015, having posted growth of 6.2 percent in 2014. Construction, which has anchored growth over the past couple of years due to the boom in construction work for central government, is starting to wane in light of water shortages in the central region and the slowdown in government expenditure on construction of new government office blocks. The construction sector is also expected to slow further, following the completion of the three major mine construction projects during 2015 (Husab, B2Gold and Tschudi), thus leading to a slowdown in the growth contributions from the sector. Another key driver of growth, wholesale and retail trade, is also widely expected to slow, largely as a result of a slowdown in government spending and the major fall in retail tourism from Angola. The sector will also be weighed down by the consumer, who will face broad-based financial pressures this year and over the medium-term. With already elevated indebtedness levels, consumers’ real disposable income will be bogged down by rising inflation, particularly increasing food price inflation, rising interest rates, and increases in water and electricity tariffs. But while the sector is expected to be weighed down in the near term, the sector, was slightly resilient during 2015 growing by 8.1 percent, compared to 14.6 percent in 2014. Interestingly, according to the NSA reading, the GDP Deflator was unchanged from the prior year at 0.1 percent. The conclusion one can draw from this is that, according to the NSA, there was no movement in real prices in 2015, as inflation averaged 3.4 percent in 2015. In 2014 the GDP Deflator was 6.7 percent and Consumer price Index (CPI) 5.4 percent. The GDP Deflator is different from the CPI, in that it is a measure of the prices of all goods and services produced within the country, while CPI is a measure of a representative basket of goods and services purchased by the consumers. I digress… The outlook for the domestic economy remains poor on the back of a slowdown in global growth, particularly the slowdown in the Chinese economy, and the accompanying slump in the demand for commodities and commodity prices. The domestic economy will also be bogged down by infrastructural constraints, especially with regards to the looming water and electricity shortages. The persistent drought conditions will also weigh on growth, in addition to rising inflation and interest rates, but while the GDP print was fairly robust, given the current global and regional headwinds, we expect this figure to be revised downwards later in the year, closer to our 4.6 percent estimates. * Suta Kavari is an investment strategist at Capricorn Asset Management 2016-04-05Staff Report 2
