A first clear signal that policymakers also believe the worst is behind us
It is extremely difficult to convince people we have turned the economic tide when their daily experiences fly in the face of what they deem, is a scatterbrain notion on my side.
I was therefore ecstatic when the South African Reserve Bank, amongst all its other troubles, decided to lower their repo rate by 25 basis points from 7% to 6.25% on Thursday. This hit the market as a big surprise. Bloomberg who polled 23 South African economists beforehand reported that only three expected a rate cut with the vast majority believing there was no room for rates to go either up or down.
A week ago I did a presentation for a special interest group whose primary concern was not NEEEF or government corruption or the deficit, but to get a sober take on where we stand now. For this discussion I had to go dig for some stats that would support my view of a tentative turn-around.
Most of the indicators I chose are macro-economic so it must be expected that their immediate impact on business right now, will still be minimal. And this is also what I told my audience.
While we are nowhere near a healthy economy, we no longer are in ICU. My first indicator is money supply or so-called M2 which is cash in circulation, cash at the banks, and all other near-cash instruments. To the end of June it has increased by 6.6% compared to a year ago. This is in my view a healthy stat. Given that the economy has contracted for three quarters in a row, one would have expected its cash requirements to wane, not to improve.
Bank liquidity is also on the mend from the terrible lows in the second half of last year. This is a statistics that must be handled circumspiciously since it fluctuates widely on a daily basis, often by as much as N$1 billion. But if I compare the end of month minima this year to last, it shows me bank liquidity has nearly doubled. That too is a good sign.
Private Sector credit is my favourite stat. In my mind it is the economic thermometer and it is a strong leading indicator. This stat is not nearly healthy, registering a paltry 8.5% in June, but at least it seems to be improving. A healthy Namibian economy needs PSCE of around 13% for a real growth rate of between 4.5% and 5%.
Perhaps the best news of the past month is the headline inflation reading of 6.1% for June. There is a discernible receding trend from the staggering 8.2% in January, and it is supported by the South African reading which came in at 5.1% for June. This is certainly a clear indication that overall price growth is moderating. Also, if one dig deeper into the Consumer Price Index’s constituent elements, there is lots of good news buried deeper in the layers.
My next positive spin comes from diamond sales which started showing improvement in December last year, and which have continued a respectable upward trend. This is exceedingly good news for the fiscus since a disproportionately large slice of its income, is derived from all sorts of taxed on diamonds.
Then of course, the dramatic improvement in the balance of payments. My latest figure shows a 23% improvement although it is still negative. As the big infrastructure projects nears maturity and as the rest of the economy catches up, I believe we will still see further improvements.
Our foreign reserves at around N$25 billion at last count, is not insignificant, having stabilised above the low of N$22 billion earlier this year. The best news I read in this is that the foreign reserves have remained at an acceptable level since November 2015 when they received a 57% boost from the US$750 million Eurobond. It means that the government, despite all the turmoil of 2016, did not dig substantially into these reserves, and that whatever was needed for trade, has been put back over the past four months.
To me it was just as big a surprise as to the South Africans that the Monetary Policy Committee at the Reserve Bank saw its way open to lower the repo rate. Immediately the Rand shed a little value, from around R12.91 to R13.01, definitely not a train smash and very far from the lows it had tested since December 2015.
My menagerie of good news is not always that easy to locate and to collate. Most of the items I have listed are not coordinated in any way. It means one has to approach them carefully to draw meaningful conclusions on which way we are heading.
If only the Bank of Namibia will support me and lower our repo rate as well, then it will provide some confirmation of my view of the bigger picture. And that view is a positive one.