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Sunday 23 February 2020
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It never rains for domestic vehicle sector

Global economy expected to slow down 2020

 

By Megameno Shikwambi

The National Association of Automobile Manufacturers South Africa (NAAMSA), released Namibia’s new vehicle sales numbers for December 2019. Total vehicle sales declined by 18.4% m-o-m and by 2.2% y-o-y to 714 units.
The annual aggregate number of vehicle sales registered a decline of 12.7% to 10 389 units in 2019, worse than the Simonis Storm forecast of -11.5%, marking the 5th consecutive decline in annual sales. In addition, vehicle sales recorded the lowest units in a month since 711 units in February 2006.
Passenger vehicles and light commercial vehicles (LCV) which make up 93% of total vehicle sales recorded a decline of 10.9% and 17.1% to 4 538 units and 5 101 units, respectively, in 2019.
Sales of medium and heavy commercial vehicles had improved, increasing by 9.0% and 13.7%, respectively, in 2019.
The uptick in the medium and heavy commercial vehicles can be attributed to the increase in trucks to the uptick in construction activities in 2019. These construction activities include property and commercial construction coupled with Road construction.
The new Scania trucks hugely contributed to the increase in heavy commercial vehicles and many customers were making replacements as it is seen as a fuel cost effective truck. “Vehicle sales in our neighbouring country (SA) has also been lacklustre, with decline in new passenger car and light commercial vehicle sales occurring amidst the strong contribution by the car rental sector during the year and an improvement in new vehicle affordability in real terms. In SA, vehicle sales are expected to improve around 2.0% in aggregate sales volumes as the economy shows some recovery in 2020,” said Indileni Nanghonga of Simonis Storm.
The firm submits that new vehicle sales ended the year on a negative note, especially for passenger and light commercial vehicles.
The low economic environment and lack of consumer demand does not give hope for a recovery in the motor vehicle industry yet.
“We expect annual vehicle sales to decrease by a smaller margin of 2.8%, i.e. 10 100 units in 2020. The assumption is based on continuous low economic growth, low disposable income and lower spending which are expected to prevail in 2020,” she added.

Global economy to remain sluggish
After numerous downward revisions of global GDP in 2019, the World Bank expects global GDP to rise by 2.5% in 2020.
This is a slight increase from an estimated 2.4% in 2019, as trade and investment gradually recover.
Emerging markets and developing economies are expected to continue carrying global growth, accelerating by 4.1% in 2020 compared to 3.5% anticipated in 2019.
The World Bank highlighted that the acceleration will not be broad-based, but mostly anticipated to come largely from a handful of large emerging economies stabilizing after deep recessions or sharp slowdowns.
There are still a number of global threats that could result in further economic slowdown such as fear of re-escalating trade wars, geo-political tensions (Middle-East) and un-favourable weather.

Regional growth to rise to 2.9% in 2020.
The World Bank attributes the growth to improved investor confidence in some large economies, easing of energy issues, and a rise in oil production, which will lead to recovery in oil exporters.
Agricultural exporting countries are also expected to record robust growth. In South Africa, growth is expected to pick up to 0.9%, which is below the initial forecast of 1.0%.
SARB also revised SA’s economic growth forecast from 1.4% to 1.2% in 2020, citing escalation in global trade tensions, geo-political risks, further domestic supply constraints and/or sustained higher oil prices to generate headwinds for growth.
“In Namibia, we expect 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.
The wholesale and retail sector, which is the biggest contributor to real GDP, is declining due to lower spending caused by high unemployment and consumer indebtedness
“The mining and manufacturing sectors, contributing each about 10% to real GDP, are facing structural challenges. Weak commodity prices coupled with mines going into care and maintenance (Langer Heinrich and Trekkopje) and facing possible closure (Weatherly and Scorpion Zinc) are threatening the medium-term outlook of the sector,” says Simonis Storm.

Uncertain policies contributes to a struggling sector
Economic recovery will be unlikely if the following are not addressed: 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.
Says the firm, “We expect inflation to rise further to 4.8% in 2020.
Our assumption is based on expected meat price increases and a low base effect. Furthermore, continuous effort from OPEC and Russia to cut oil production could put upward pressure on oil prices in 2020.
With the expected below-normal-to-normal rainfall, we expect food prices to stabilise in 2020. Low inflation, amidst negative GDP continue to reinforce the case for interest rate cuts,” the report concludes.




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