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Credit extension slump signals recession – PSG

Changes in the Credit Agreement Act which requires a deposit of 10% on all vehicle loans and limits repayment periods to 54 months will have to be made to prevent an economic slump.

PSG, a financial service provider said this week that the yearly private sector credit extension (PSCE) growth fell for four straight months, mostly due to the growth in total mortgage credit, which accounts for more than 50% of total PSCE.

Growth in credit extended to households ticked lower to a yearly 9.3% in December from a yearly measurement of 9.4% in November.

PSG said in a statement said that the decline in overall credit demand during this period reflects a slump in economic growth, a higher inflation environment which is likely to lead to tighter monetary policy. The slower growth in corporate credit was mainly reflected in all of the sub-categories, with the exception of mortgage loans.

We, tentatively, maintain our baseline expectation that the BoN will raise its repo rate by 25 bps during 2017.” PSG said however that future economic forecasts are forward looking as economic recovery in 2017 could lead to growth thanks to higher mineral exports and commodity prices.

Possible downside risks to an economic recovery are mentioned as risks include persistently high food inflation, higher taxes, higher interest rates, higher administered prices (fuel, water and electricity prices) and a weaker Namibian dollar.

PSCE growth declined further in December, mainly as a result of a decline in demand for credit from the corporate sector, according to the Bank of Namibia’s (BoN) recently released Money and Banking Statistics report. Lower growth in corporate credit in total credit extended to the corporate sector decreased to 8.5% yearly in December from 9% in the previous month.

According to PSG the signals of an economic recession started in March 2015 when the demand for credit during this period showed a recession in overall credit demand and economic growth.

Yearly measurement by PSG shows how the PSCE growth sloped to 8.9% yearly since December from 9.3% in November. This lead to a broad downward trend since March 2015.

Since March 2015 the growth has been ongoing, corporate credit demand peaked at 25.6% yearly.” PSG said.

Although the Rand which equally is pegged to Namibia has strengthened compared to 12 months ago, the currency has been volatile and susceptible to shifting perceptions about South Africa’s creditworthiness and political risk as well as the uncertainty over the future trajectory of US interest rates.

PSG is of the opinion that this volatility is likely to fizz out and divisive policies have added to the US Federal Reserve’s interest rate decisions.

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