FNB revises GDP forecast downwards

Chamwe Kaira

FNB Namibia senior manager research and development, Daniel Motinga, has revised the annual GDP growth outlook downwards from 4,5% to 3,9% in the recent Africa monthly report by RMB on Global Markets research.

“We believe the economy expanded by 2,8% in the first half of this year and expect most of the momentum to be in the second half of the year. Our biggest concern is the sluggish pace of private consumption growth which registered an eight percent increase in 2012. We forecast a slight improvement to 8,3% in 2013 largely supported by tax relief. We are also becoming less bullish on investment spending growth given the large base established in the prior year,” Motinga said.

He added that investment spending rose by 19,7% in real terms in 2012, a feat impossible to replicate in 2013, particularly since there was a deceleration in private sector investment spend. He continued to say that on the demand side, imports would detract from growth as they continued to expand near 12% year-on-year compared to exports which were likely to recover from 4,7% year-on-year in 2012 to 8% in 2013. “However, over the medium-term, we see growth quickening from 2014 onwards as investment spending recovers particularly in the construction sector. Our view of flat interest rates over the medium-term should also entice businesses to draw down on facilities much more aggressively and encourage the creation of capacity for future growth,” he said.

In the report, Motinga also talked about production advising that agriculture will contribute significantly to growth this year while uranium production has picked up steadily.

Langer Heinrich, a current producer, reported a 10% increase in production in the second quarter compared to the first quarter despite the slump in uranium prices after the Fukushima disaster in Japan.

He said that inflation stood at 6,2% in June lower than the forecast of 6,3% on account of the better than expected performance in the food inflation component.

“However, most of the pricing pressure is coming from the services component suggesting that the pricing power has probably shifted from goods producers to service providers. Service inflation accelerated to nine percent year-on-year from 8,5% in May compared to goods inflation which stood at 4, 6%.

“However, overall inflation is decelerating on a monthly basis. Food inflation quickened in line with expectation, though less strongly than anticipated, coming in at 7,6% in June compared to 7, 4% in May. Transport inflation is likely to re-accelerate in July as fuel price effects filter through,” he said. On the topic of monetary policy, Motinga said the Bank of Namibia believed that inflation was currently at tolerable levels and that monetary policy should continue to support growth given the external risk to the growth environment. “Although we share the bank’s sentiment, we interpret the statement to mean that current policy characterised by low Interest rates will prevail this year.

“We think the current rand volatility could persist reducing the likelihood of an interest rate adjustment this year. Therefore, we are sticking to our core view of flat rates for 2013 and 2014. As always, there are downside risks to our view but we are not attaching significant probabilities to these outcomes on account of the inflation risk, which might manifest in the anchor economy,” said Motinga.