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Uneven economic recovery expected as Covid-19 cases rise

2021-02-11  Maihapa Ndjavera

Uneven economic recovery expected as Covid-19 cases rise
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Edgar Brandt

The Namibian economy is likely to witness only pockets of growth in certain industries such as mining, agriculture, and manufacturing during 2021. However, overall domestic consumer environment coupled with the hospitality industry could remain strained over the medium-term. 

This is according to Senior Research and Product Development Officer at the Agricultural Bank of Namibia, Indileni Nanghonga, who in the bank’s Monthly Market Watch for January 2021 further noted that the global economy would continue feeling the pinch in 2021 as Covid-19 cases rise. She added that most global economies are now expected to record an uneven recovery despite vaccine rollouts. 

Nanghonga explained that based on the projected GDP numbers, the (domestic) economy is expected to witness a V-shaped recovery which suggests a quick broad-base recovery, returning to pre-recession levels without large sectors falling behind. However, she stated that this V-shaped recovery in Namibia is unlikely because “recovery in the labour market will not be rapid, thus still suppressing disposable income and straining demand for non-necessity goods and services. The vehicle industry and the retail sector will still suffer from low demand”. 

“Whether the glass is half full, or half empty, the potential of a global recovery remains uncertain. Economists continue to agitate the alphabetic soup to indicate whether we can expect a bounce back, a slow-burn recovery or relapse. Predictions for a V-shaped (V standing for vaccine) recovery in 2021 was based on the vaccine roll-out. However, as Covid-19 cases rise, the global economy is likely to witness a sluggish and uneven recovery in 2021. This could translate into a K-shaped recovery, where some sectors of the economy begin to bounce back upward while others continue to suffer,” Nanghonga explained in the report. 

She continued that demand for agri commodities remains strong in 2021 but cautioned that supply disruptions caused by weather conditions could result in even higher food prices. 

“Improved rainfall during the 2020/21 season is expected to restore hope for farmers. However, pests and diseases remain as upside risks. Lastly, livestock farmers can take advantage of the current high livestock prices to improve profitability whilst carefully balancing that opportunity with the need to grow future herds,” the AgriBank report reads.  

Nangonya added that an increase in global commodity prices coupled with increase in food prices is expected to spur inflation in 2021. She also predicts that monetary policy will remain on hold throughout 2021 until a solid economic growth trajectory is restored on both the local and international levels.

Furthermore, on the business front, she advised that in 2021, businesses should continue strengthening resilience and accelerate transformation in areas such as digital customer engagement, operations, technology, risk and sustainable finance. 

In terms of foreign exchange, the South African rand depreciated by 3.2% to the end of January 2021 to R15.15 against the US dollar due to speculation that the United Kingdom’s new lockdown may spread to the rest of Europe. 

“The rand is expected to trade below R15/dollar in 2021, reflecting international factors such as the US election outcome, vaccine developments and an abundance of liquidity. A stronger rand could fare well for importers, but dreadful for exporters and investors with offshore portfolio exposure. 

Furthermore, the US dollar is expected to weaken modestly as interest rates have converged to around zero, globally coupled with quantitative easing policies pursued by major central banks,” Nanghonga noted.  

2021-02-11  Maihapa Ndjavera

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