By Hilary Mare
OWING to a murky economic outlook, Simonis Storm Securities has revised the GDP forecast for 2016 downwards from 4.8 percent to 4.1 percent, an anomaly that also stems from the World Bank and the International Monetary Fund (IMF) having also revised global GDP growth downwards.
The IMF is now expecting 3.2 percent global GDP growth whilst the World Bank is expecting 2.4 percent.
“In South Africa, the challenges of perpetual mismanagement in public office, unstable utilities, corruption, a shrinking mining sector and tight disposable incomes of consumers will mean that a recession is probably inevitable. The World Bank and IMF expectation for GDP in South Africa is now 0.6 percent for 2016. Economists and fund managers believe that the credit downgrade that was avoided is only postponed and some now expect it to eventually happen by December this year.
“What effect will this have on Namibia? Well, it was no surprise that the Namibian Stock Exchange (NSX) was stable during the outcome of the Brexit referendum. If only our local market was deeper and more liquid, but as they say be careful what you wish for. As we well know, liquidity creates downside risk, however on the other hand, any market without liquidity may also be deemed artificial. Namibia has a number of problems of its own. A country that seems to plan very poorly as is evidenced by the water crisis, a possible bubble in the construction and real estate market, a disappearing Angolan consumer, a precarious foreign reserves position and a high reliance on Government spending and mining.
“Incidentally, these are the main areas where we believe growth will cushion us from a full blown recession. Government has communicated that they will consolidate, meaning that fiscal policy may be the only salvation out of an economic contraction and at the same time certain local mines, particularly gold and uranium mines, will provide the much needed support to keep the economy afloat. As such, we revise our GDP forecast for 2016 downwards from 4.8 percent to 4.1 percent and our inflation expectation remains the same at 6.5 percent. We now also expect BoN to follow South Africa more closely with regard to monetary policy as the economic outlook continues to be murky,” director Purvance Heuer explained.
The Bank of Namibia’s (BoN) monetary policy objective is to achieve price stability and to maintain the one-to-one currency peg regime with the South African Rand (ZAR). Because of the currency peg regime, Namibia’s monetary policy is technically ineffective and BoN is thus inclined to follow South Africa’s monetary policy. This leaves the Namibian financial system vulnerable to political and macroeconomic developments in South Africa, such as the fluctuations of the ZAR and its impact on price stability.
“Since Namibia is highly integrated into the South Africa economy, Namibia’s inflation is driven by South Africa to a large extent, because a large percentage of goods consumed in Namibia come from South Africa. This has a negative effect on real returns, particularly for longer term bonds. The impact of financial repression is starting to have an impact on Namibia. For instance, the 10-year Government bond yield at the end of May 2016 stood at 10.8 percent, while inflation for the corresponding period came through at 6.7 percent. This translates into a real return of 4.2 percent compared to the more robust real return of 6.2 percent in May 2015 and
6.0 percent during April 2015,” he added.
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