THE annual slowing growth in money supply could further extend the sluggish growth in the country’s real gross domestic product as less money in circulation leads to less spending and lower economic growth.
This was outlined in a short Simonis Storm (SS) analysis compiled last week following the release of the Bank of Namibia (BoN)’s ‘money and banking statistics’ for December 2018.
In it, economist Indileni Nanghonga said money supply (M2) experienced slower growth of 6,4% in December 2018, compared to 14,1% the preceding year.
“This is reflected in the declining levels of other deposits of 1,2% year-on-year (y-o-y) (+15,7% in December 2017), as well as the contraction in currency in circulation of 4,9% (+7,4% December 2017) during the period under review,” Nanghonga said.
The central bank’s money and banking report for December 2018 showed that the annual growth in broad M2 slowed further at the end of December 2018.
“The annual growth in M2 slowed by 1,1 percentage points month-on-month to 6,4% at the end of December 2018. The slower growth in M2 was mainly driven by declines in domestic claims, specifically claims to other sectors. The slower growth in M2 was further reflected in the declining levels of other deposits, as well as the contracted growth in currency in circulation during the period under review”, the central bank said.
In terms of the private sector credit extension (PSCE) outlined in the money and banking statistics, it increased by 6,7% y-o-y in December 2018, compared to a 5,1% growth recorded in the prior year.
Nanghonga said this increase can be attributed to borrowing through other loans and advances, overdraft facilities and mortgage loans that increased by 14,5% y-o-y, 10,1% y-o-y and 6,5% y-o-y in December 2018, compared to 5,4%, 4,1% and 8%, respectively, in the prior year.
“On a 12-month average for 2018, PSCE increased by 6,1% in line with our expectations, but lower compared to the 6,7% average growth in 2017. The slower pace of growth in 2018 can be ascribed to slower growth in mortgage loans of 7,2% and overdrafts of 4,8%, compared to 8,2% and 11,1%, respectively, in 2017”, she added.
Moreover, the average instalment credit dropped by -5,8% in 2018 compared to a -0,8% decline in 2017, with the economist saying the contraction in instalment credit complements the contraction of 9,9% observed in new vehicle sales in 2018.
“We expect PSCE to remain subdued between 5% and -8% in 2019, well below the historic average of 11%. Our view is based on low economic growth, tighter borrowing appetite by the commercial banks, an already highly indebted consumer, coupled with high unemployment that will put a strain on PSCE growth,” Nanghonga said.
She added that credit as a percentage of household disposable income registered 83,3% in 2017, with the growth in disposable income increasing at a slower pace of 7,8% in 2017, compared to a 13,3% recorded in 2016, and “with the 2018 numbers still to be released by mid-2019, we are of the view that it has worsened.”
– charmaine@namibian.com.na
