Economist warns of growth fatigue

NAMIBIA’S growth outlook remains largely positive, but there are increasing signs that the momentum might be fading, Daniel Motinga, head of research at FNB Namibia, has warned.

In the recent research magazine of Rand Merchant Bank (RMB) and its Fixed Income, Currency and Commodities (FICC) trading division, Motinga interpreted the latest economic trends under the title ‘Namibia: Signs of growth fatigue?’He said lacklustre gains in primary sector output and subdued consumer demand indicators demonstrate a slowdown in growth. Ministry of Mines and Energy data shows that diamond production for the first five months of 2011 was at 528 000 carats showing a nine per cent decline compared to the same period last year. Worse is that uranium output has had a much more drastic decline, and is down by 23 per cent year-on-year (y/y) for the first five months of 2011, he said. ‘However, it is not all doom and gloom as uranium exports increased by three per cent y/y for this period in value terms even though export volumes were flat.’Motinga said he record rains of 2011 that lasted until May had a negative impact on livestock off-take, which barely increased by two per cent on an annualised basis during the first four months of the year.However, despite the headwinds, ‘we still maintain our growth forecast of gross domestic product (GDP) printing at 4,1 per cent for 2011 and 5,1 per cent for 2012 despite the deceleration in economic activity over the first half of 2011’. Motinga said Government spending is expected to kick in from the second half of the year and provide further growth momentum.Data by the Bank of Namibia (BoN) shows that private sector credit extension surged to 12,7 per cent y/y in May. ‘The game changer is clearly a sustained recovery in household credit demand,’ Motinga said. New vehicles also recorded an average growth rate of 16 per cent y/y since November 2010. ‘We expect this trajectory to continue in 2011 with the characteristic monthly volatility,’ he said.However, the annualised growth rate in total new vehicle sales slowed by 10,6 per cent in June, indicative of stalling consumer demand, he said. Broad money supply also decreased by three per cent y/y in May, which confirms lost momentum in economic activity, he added.Motinga said business credit demand is quite healthy and is perhaps indicative of a private sector investment-led recovery into 2012. Non-financial sector business credit extension continues to increase faster than household credit. Year-on-year growth came in at 16,8 per cent in May. As was the case in 2010, most of advancement in business credit demand comes from the mortgage category, he said.PRICE MONSTER LOOMSRegarding inflation, Motinga said that the expectation is that inflation will accelerate in 2011 and 2012 as the recovery theme unfolds. After averaging 4,5 per cent in 2010, inflation increased to 5,2 per cent y/y in May. ‘In line with these new dynamics, the inflation forecast has been revised upwards from 5,2 per cent to 5,7 per cent given the probable inflationary effect of Government spend, as well as spillover effects from the high global fuel prices on transport inflation,’ Motinga said. He added: ‘Fundamentally, we still see inflation maintaining single-digit levels for most of 2011 and perhaps 2012. We maintain our forecast of inflation printing seven per cent in 2012. ‘Fuel prices have been falling, which should provide a further reason to keep rates on hold at the August meeting. However, in the medium term, we are worried about the recent wage negotiations and settlements in the local economy, which are in excess of the average inflation rate. The government has also agreed to a ten per cent salary hike for civil servants.’ Commenting on monetary policy, Motinga said the BoN remains concerned about the global outlook and the attendant risk it holds for a sustained export-led recovery in the domestic economy. ‘Therefore, the core view is that the vulnerabilities of the local economy as a result of global risk will continue to inform monetary policy. ‘Consequently, we may only see an upward movement in policy rates from December 2011. We maintain that rates should then rise by at least 50 basis points to help stem secondary inflation pressure and dampen inflation expectations. This should help bring consumers back into the spending fold.’ Motinga said he expected the pro-cyclical push in government expenditure to continue over the medium term.’There will be a major ramp-up in government spending over the current Medium Term Expenditure Framework period.’We expect a more gradual implementation of the spending programme as bureaucratic bottlenecks such as in the procurement process are being resolved.’Motinga said BoN foreign reserve levels are improving gradually, ending May at N$10,87 billion – up 1,4 per cent month-on-month, but down 15 per cent y/y because of Southern African Customs Union (Sacu) revenue shocks.