By Hilary Mare
FOLLOWING the release of Gross Domestic Product (GDP) figures for the second quarter 2018 by the Namibia Statistics Agency (NSA) last week, Simonis Storm Securities has predicted a gloomy outlook that will persist in the medium term.
GDP in real terms dropped by 0.2 percent during the second quarter 2018 compared to the second quarter in 2017. It is the ninth consecutive quarter of economic contraction. The last positive economic growth was recorded in the first quarter 2016 at 4.4 percent.
“We expect to see more bankruptcies, liquidations and auctions to come through due to higher unemployment and lower wages and household income. Education, private capital investments, and economic opportunities are all likely to suffer in the current downturn, and the effects will be prolonged. In addition, we expect higher budget deficits, low revenues triggered by low tax collections from SACU, VAT & Income Tax and lower capital spending, whilst operational expenditure persists,” Indileni Nanghonga, Junior Analyst at Simonis Storm said last week.
The subdued GDP performance is mainly attributed to the manufacturing sector that posted a negative growth of 12.5 percent when compared to a positive growth registered in the preceding year. This was further supported by declines in ‘wholesale and retail trade’ plus fishing and agriculture sectors.
Furthermore, government activities recorded a decelerating growth in real value added during the period under review. The education and health sectors posted declines of 6.2 percent and 4.9 percent respectively. Hotels and restaurants recorded a decline of 2.6 percent in the second quarter of 2018.
However, strong growth rates were witnessed in the mining and quarrying, electricity and water with the construction sectors recording 22.4 percent, 16.7 percent and 23.8 percent respectively, in real value added.
“While economies often see rapid growth during recovery periods as unused capacity is returned to work, the drag due to the long-term damage will still prevent the recovery from reaching its full potential over the next 3 years.
We have had 28 years of prosperity, the world had at least 2 recessions during that time, and we are just catching up,” added Nanghonga.
Klaus Schade, a Research Associate at the Economic Association of Namibia also highlighted that although there was slight optimistic after the release of the first quarter data, the second quarter data suggests that the economy continues to face strong challenges.
“Quarterly data is preliminary and always up for revision when more data is collected. However, it provides a first glimpse of the performance of the economy. GDP’s growth for the first quarter 2018 as well as all quarters for 2017 was revised downward, which indicates that the contraction was stronger than initially estimated,” Schade said.
Schade further noted that global events such as the imposition of tariffs by the US administration more products imported from China – and China’s retaliation –, the threat by the US to impose tariffs on imports from Canada if Canada does not agree on the proposed revised NAFTA agreement as well as threats to impose tariffs on imports from the EU are not supportive of a speedy recovery of Namibia’s economy. ‘Trade wars’ dampen the demand for and prices of commodities, Schade said.
“In addition, financial investors moved assets to safe havens, such as the US dollar, which resulted in currencies of emerging markets coming under pressure. Furthermore, US sanctions against Iran have resulted in rising oil prices, even before direct US sanctions against Iranian oil exports are put in place. The rising oil prices have resulted in increasing fuel prices and inflation, which will impact negatively on consumer demand and will increase production costs.
“Namibia, therefore, needs to continue to improve the business and investment climate in order to attract domestic and foreign direct investment into manufacturing activities and into the service sector, since Government’s fiscal space is limited to stimulate the economy,” further stated Schade.
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