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Report shows slower GDP growth

In a mid-year review by the economists of a local bank, the first tangible facts were presented indicating that first quarter growth disappointed but that the outlook for the rest of the year, is still positive.
First National Bank Namibia (FNB), Head of Research, Daniel Motinga, in his report advised that Namibia’s growth outlook remains fairly positive even though 1Q14 growth did disappoint at 1.6% y/y in unadjusted terms.
“This suggests that there are downside risks to our growth forecast. Crucially, there are indications that the volatility in the global growth environment will continue and furthermore, that there are notable headwinds emanating in the livestock export environment due to stringent import requirements that were implemented by South Africa in May. This is affecting livestock exports negatively,” he said.
He added that the primary sector, which was generally affected by global growth dynamics, declined during 1Q14 and said that agriculture was down 19%; fishing declined by 13% y/y and mining contracted by 3.8%. While he mentioned that there was a seasonal element to these numbers, he also believed that they were more indicative of the global growth and trade environments.
In contrast, Motinga said, “those sectors that depend on domestic strength, accelerated. Construction grew by 22% y/y and wholesale and retail trade was up 20.6% during 1Q14. Transport and communications also grew by 12%.” He said that given strong domestic demand and the expectation that global growth would be much more anchored in the second half of this year, FNB believes that Namibia should experience more broad-based growth in the second semester. Said Motinga, “Consumption demand remains strong considering the healthy growth in household credit demand. Household credit grew at an annualised rate of 15.8% in April 2014, which is the highest it has been since February 2013. Total private sector credit extension increased by 15.8% y/y in April, which is a percentage point higher than the prior month. Business credit demand also recovered after dipping below 14% y/y in March, to nearly 16%.”

When looking at inflation he said that it has started to accelerate in line with expectations, printing at 6.1% in May, up from 5.9% in April. Food and non-alcoholic beverages increased by 9.9% on an annualised basis, which was slightly ahead of the forecast. Transport inflation rose the fastest at 10.5% y/y and was up 0.3% on a monthly basis. Only the communications category experienced deflation with a decline of a half percent in annualised terms. Education inflation also increased by 8.1% y/y. Motinga said: “It is clear from these numbers that exchange rate depreciation is having an impact on both food and fuel prices.”
He said the Bank of Namibia’s Monetary Policy Committee commenced its hiking cycle by raising the repo rate by 25 basis points at its last sitting in June.
He said, “This was unexpected as we had thought that the committee would wait for the South African Reserve Bank to move in July. Even though the Bank of Namibia does not have a clear mandate for price stability nor an explicit inflation target, there was no doubt that the hiking cycle would eventually begin as CPI breached the psychological threshold of 6% in May. However, we are surprised by the 25bp move, particularly given the MPC’s concern about the erosive impact of the trade deficit on its rand reserves.” He said that FNB believed that the central bank was of the view that inflation would remain around 6% for the rest of the year and its main concern was maintaining the currency peg.

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