The domestic economy continued to display weak performance, year-on-year, during the third quarter of 2016, reflecting slowed activities in the mining, agriculture, manufacturing and construction sectors, while inflation rose over the same period.
The activities in the mining sector slowed down, mainly due to operational factors, while drought and health requirements on life animals exported to South Africa constrained the agricultural sector.
The information is contained in the Bank of Namibia Quarterly Bulletin December 2016 released this month.
“Similarly, activities in the construction sector continued to slowdown, primarily due to the fiscal consolidation efforts of Government and the completion of major construction projects in the private sector. On the contrary, the performance of wholesale and retail trade and transport sectors remained positive, reflecting sustained demand and increased cargo volumes, respectively,” notd the report.
The inflation rate rose, on average, by 0.2 percentage point and 3.6 percentage points to 6.9 percent, on a quarterly and annual basis, respectively, during the third quarter of 2016, largely due to the rise in the inflation rates for housing, water, electricity, gas and other fuels, transport and food. “With regard to the monetary and financial developments, the Monetary Policy Committee (MPC) maintained the Repo rate unchanged during the third quarter of 2016. The Bank of Namibia maintained the Repo rate at 7.00 percent in August 2016 to continue supporting the country’s economic growth, particularly in light of slow and fragile recovery in the economies of Namibia’s trading partners.”
During the same period, according to the report, the growth in money supply (M2) contracted, stemming from a decline in deposits of corporate sector, coupled with low credit extended to the private sector.
Growth in credit extended to the private sector (PSCE) moderated over the same period. The moderated growth was reflected in the decreased borrowing by both the household and corporate sectors during the review period.
On the fiscal front, Government’s total debt increased, year-on-year, as reflected in both the domestic and foreign borrowings, mainly the Eurobond. As a result, Government’s total debt as a percentage of GDP rose to 39.6 percent at the end of the second fiscal quarter of 2016/17 from 28.2 percent at the end of the corresponding quarter of 2015/16. in contrast, Government loan guarantees as a ratio to GDP decreased to 4.0 percent from 4.4 percent over the same period and remained well below the threshold of 10.0 percent.
On the external sector front, the overall balance of payments recorded a surplus of N$5.3 billion during the third quarter of 2016, a turnaround from a deficit of N$2.0 billion during the corresponding quarter of 2015, mainly supported by increased net capital inflows in the capital and financial account. The current account registered a deficit of N$4.0 billion during the quarter under review, lower than during the corresponding quarter of 2015.
The improvement in the current account deficit was underpinned by increased export receipts, while imports declined. The international investment Position (llP) recorded a reduced net surplus on a yearly basis during the third quarter of 2016, due to a rapid growth in foreign liabilities relative to assets abroad.
With regards to the exchange rate, the Namibia Dollar depreciated against most of the major trading currencies on a yearly basis, but appreciated on a quarterly basis, during the third quarter of 2016. The yearly weakening of the domestic currency in relation to the US Dollar and Euro could be attributed to South Africa’s weak economic outlook, persistent fears of a sovereign credit downgrade, low commodity prices, coupled with the ongoing severe drought.
On the other hand, South Africa’s recent peaceful local government elections and the trade surplus that was recorded in July 2016, which eased pressure on the country’s current account deficit, contributed to the strengthening of the Rand against the trading currencies, quarter-on—quarter, during the period under review.
Going forward, the IMF projects the global economic growth to recover in 2017 from a slower growth in 2016. In this regard, the global economy is projected to grow by 3.4 percent in 2017, higher by 0.3 percentage point when compared to the estimated growth for 2016. This growth is projected to be on account of positive developments in both emerging markets and developing economies.
Risks to the outlook, however, remain and include the uncertainty regarding the ultimate impact of the Brexit negotiations, which is unclear, low commodity prices and geopolitical tensions.
Global economic developments
Global growth prospects remained weak during the third quarter of 2016 compared to the same period in 2015, amid slight improvement in the UK, Eurozone and Japan.
This slowdown was mainly due to the weaker growth in the US economy. On the contrary, growth in emerging market economies improved marginally over the same period, though this improvement was not sufficient to offset the impact of slower growth in advanced economies on the global growth. Going forward, accommodative monetary stimuli and renewed fiscal support in some countries is expected to support global economic growth.
Monetary policy stances were accommodative in both advanced and emerging market economies, while inflation increased in advanced economies but declined in emerging market economies during the third quarter of 2016.
Monetary policy stances were accommodative in both advanced and emerging market economies, except for Brazil and India.
On the price development front, inflation increased in most of the monitored advanced economies, except for Japan where it remained in deflationary levels.
On the contrary, inflation rates in the monitored emerging market economies declined during the quarter under review, except in Angola where it continued rising.