By Staff Reporter
The Namibian Statistics Agency (NSA) released the inflation numbers for November 2019 which indicate that overall inflation slowed to 2.5% y-o-y in November 2019 compared to 5.6% in the prior year.
The decrease in inflation continues to be fuelled by moderate growth in transport inflation of 0.1% in November 2019 from 13.8% in the prior year.
“We expect an average inflation rate of 3.9% in 2019, below our initial forecast of 4.5%. Inflation is expected to rise further to 4.8% in 2020,” said Simonis Storm.
Inflation remains stubbornly low because of the following:
Low global oil prices
Transport inflation increased at a slower pace of 0.1% in November 2019 compared to a 13.8% in the prior year.
Global oil prices remain stubbornly low, hovering mostly below R1000 per barrel throughout 2019.
Furthermore, although the Rand reached a high of R15.46 against the USD this year, the fluctuations were not significant enough to trigger fuel price changes since May 2019.
Lower global oil prices coupled with a stable currency, will likely keep fuel prices unchanged in the short run.
High unemployment and consumer debt: The Phillips curve theory, which suggests high unemployment, low inflation and low unemployment, high inflation, no longer holds in many developed countries. However, in Namibia we believe that the theory still holds.
Unemployment continue to rise, restraining purchasing power and reducing households’ disposable income.
This has led to less spending on goods and services, thus resulting into lower prices.
Household indebtedness to disposable income remained high at 83%, which again reduces disposable income needed to spend on goods and services.
Low economic activities, low business and consumer confidence resulted into preference to save money rather than spending it (reducing demand on goods and services).
This in-turn has put downward pressure on bond yields in 2019. However, relatively high real returns on investments continue to outweigh the appetite for mega spending, especially during this dire economic environment.
This is mainly evident in the housing category and in the food and non-alcoholic beverage category (specifically meat). The oversupply of residential property in most suburbs, especially after a significant slowdown in demand, led to falling house prices.
The housing, electricity, water and other fuels category registered slowing inflation of 1.9% in November 2019 compared to 3.1% in the prior year.
In addition, meat prices have been in a deflation (-0.3% in November 2019) mainly on the back of excess supply in the market.
YTD inflation averaged 3.8% compared to a 4.2% average rate during the same period last year.
The economic Crystal ball
Meanwhile, Namibia is experiencing the longest low economic growth environment, prevalent since 2015.
The status quo is as a result of both external and internal factors.
Experts at the firm project GDP to increase by 0.9% and 1.5% in 2020 and 2021, respectively (as our fair case scenario).
This is mainly on the back of better rainfall prospects that could result in improved agriculture harvest and cattle restocking.
Furthermore, the mega road and infrastructure projects expected in 2020 could spur growth in the construction industry.
Simonis Storm has said economic recovery will be unlikely if the following are not addressed: 1) ambiguous communication to investors, slow or no structural reforms, lack of accountability, lack of private sector engagements, slow execution, corruption and lack of common goals.
External factors – low commodity prices and the drought, internal factors – mismanagement of public funds, poor governance, high level of corruption, over-regulated industries and weakening consumer demand.
In the 2Q2019, GDP contracted by 2.6% making it the 4th consecutive quarter of contraction.
We expect the 3Q2019 and 4Q2019 to contract further by 1.8% and 0.2%, respectively.
The wholesale and retail sector, which is the biggest contributor to real GDP, has been on a decline due to lower spending caused by high unemployment and consumer indebtedness.
The mining and manufacturing sector, contributing about 10% to real GDP, are facing structural challenges.
Weak commodity prices coupled with mines going under care and maintenance (Langer Heinrich and Trekkopje) and facing possible closure (Weatherly and Scorpion Zinc) are threatening the medium-term growth of the sector.
Policies and regulations are some of the worrying contributors to a struggling sector.