Capricorn sees more inflation and higher interest rates
As global economies trudge into another year of economic uncertainty, Namibia’s outlook is relatively constrained with an expected slowdown in growth to 4.2% for the year. This is according to Capricorn Asset Management in its “Overview of the Namibian and Global economy”, released last week.
In the discussion on the global economy, the report shows that Namibia is still very susceptible to uranium prices which have been depressed for most of 2012. It also singles out three major areas which remain key for Namibia’s performance in 2013; exchange rates, inflation and credit growth.
Since the second quarter of last year the depreciating Namibia dollar has left money market investors wary of exchange rate shocks. The performance of the local currency is a result of the Rand’s volatility in the global market.
Despite sidestepping the fiscal cliff in the USA, the report shows the months of February and March may result in further exchange rate fluctuations with the USA facing a debt ceiling crisis. “According to experts, there is a possibility that USA will reach the debt ceiling limit. What this suggests is that there could be a downgrade of USA treasuries. When this happens (if the past is anything to go by) investment tends to gear towards the less riskier investments. The result is capital outflow which may lead to a further whimsical Rand/US$ exchange rate.”
As prices within Namibia continue to escalate, the Capricorn analysts remain hopeful that by the end of this year, average inflation will be 5.7%. This is 0.8 percentage points lower than last year’s average inflation of 6.5%. This value remains optimistic despite the report anticipating that food and oil prices may increase for the first quarter of the year. This projection assumes that there will be minimal external cost push factors in play. The report still cautions consumers that there will be a definite pinch in their spending patterns as inflation is expected to peak in the second quarter of the year.
Shifting the focus to debt, Capricorn says Credit Extension to the Private Sector reached an alarming 18.9% monthly reading which is almost double the comparable reading in South Africa. Credit growth is also reflected in the figures for household debt. Citing a new survey in the Bank of Namibia’s latest Financial Stability report, Capricorn asks Adjusted Household Debt has now reached the level of 89.9% relative to disposable income. In 2006, this figure stood at 99.1% which at that time, was regarded as unsustainable and a potential threat to macro-economic stability.
According to the report, credit growth seems to be fuelled by overdraft lending. The noticeable consideration is the 33.7% year on year growth in overdraft lending that correlated with growth in Private Sector Credit Growth for November last year.
In conclusion, the report acknowledges the steady fiscal environment and hopes that the revival of the global economy will trigger “a renewed sense of investor and consumer sentiment which could translate into increased demand for Namibian exports.”