Decelerating growth in money supply points to slower economic growth
The Namibian economy continues on a downward trajectory as the falling growth rate in the broad money supply to 6.6% y-o-y in July 2019 from 7.3% y-o-y in June indicates a lack of demand or ability to spend by both individuals and companies.
The Bank of Namibia attributes this slow growth to decreases in transferable deposits and currency in circulation outside depository corporations. Looking closer at the determinants of money supply, the central bank indicated that growth in claims on the private sector decreased to 7.7% y-o-y in July, down from 8% y-o-y in the previous month.
Growth in claims on businesses moderated slightly to 8.7% y-o-y in July from 8.8% y-o-y recorded in June, while the growth in claims on individuals inched lower to 7.1% y-o-y in July from 7.4% y-o-y in June, due to slower growth in mortgage credit extended to households.
“The growth in monetary and credit aggregates remains lacklustre, in line with depressed domestic economic activity. We forecast the economy to contract for a third consecutive year in 2019,” Head of Research at PSG Konsult, Eloise du Plessis said.
On the other hand, Namibia’s foreign reserves is expected to increase modestly in 2019 thanks to inflows into the financial account from SAC transfers. “The level of international reserves rose to N$35.1 billion at the end of July from N$33.4 billion recorded in the previous month, mainly due to inflows of SACU revenues in July.”
“However, SACU inflows will be lower over the medium term due to weaker GDP growth in South Africa which tends to lower the SACU revenue pool, and export growth is expected to moderate this year due to the global economic slowdown and lower diamond production,” du Plessis said.