November 01, 2024
Economy

PSG forecasts drop in real GDP

May 27, 2022
PSG forecasts drop in real GDP

Namibia is expected to record a real gross domestic product growth (GDP) of 3,5% this year, down from the 4,2% previously forecasted. 

According to a PSG Namibia economic analysis for 2022, the short term outlook is attributed to a number of factors including the performance of the agricultural and mining sectors. 

PSG predicts the agricultural sector will continue being pulled down by stock numbers that were depleted by years of successive droughts and will take years to rebuild. 

“The livestock industry in southern Namibia is also facing a major challenge from a brown locust invasion that is destroying pastures,” said the PSG report noted.

 Although the recent good rainfalls should ensure an above-average maize harvest in 2022, it could fall short of the previous season's record-breaking performance, said the PSG report.

 However, the industrial sector is set to benefit from planned expansions of existing diamond and copper operations; the possible resuscitation of mothballed zinc and uranium mines; the development of new ‘battery mineral’ mines and increased oil and gas exploration. 

“We expect the external environment to be supportive of Namibia’s industrial exports in 2022, barring a major escalation of the Ukraine war and prolonged lockdowns in China,” said PSG. 

With the government out to leverage Namibia’s excellent solar power and green hydrogen potential, sanctions on Russian gas exports could help to expedite the switch to greener energy sources, noted the report.

PSG predicts that the services sector will continue to be hamstrung by frugal fiscal expenditure, deteriorating real disposable incomes, higher unemployment, and high consumer indebtedness.

“We expect tourism to recover gradually to pre-pandemic levels by 2024. In March the hospitality industry's occupancy rate stood at 28%, eight percentage points higher than the same month in 2021, but trailing the pre-pandemic occupancy rate of 45%,” said the report said. 

The analysis added that the outlook for the current account deficit had worsened, mainly due to rising global oil and fuel prices as well as continued global supply chain constraints. 

“Nevertheless, we forecast the current account deficit to narrow slightly to 8.0% of GDP in 2022 from an estimated deficit of 9.2% of GDP in 2021, mainly due to higher exports and tourism earnings.”

Travel service earnings according to PSG are recovering at a tepid pace, in line with the slow upturn in global tourism due to the recurrent emergence of new coronavirus variants.

“Although we expect goods exports to grow by 17% in dollar terms this year on the back of the arrival of Debmarine Namibia’s new mega diamond mining vessel and higher mineral prices, this will be partly offset by higher import costs,” said the report.

Furthermore, low Southern African Customs Union (Sacu) revenues are projected to continue to weigh on the performance of the external balance until Q1 2023. 

Following another round of fuel price hikes in April, domestic fuel prices have now shot up by nearly N$3,50/litre since the start of the year and the transport price inflation will likely remain near double digits throughout most of the year due to the increase in fuel prices. 

The prices of wheat, maize and fertilisers have also surged in the wake of the Russian war, which will exert upward pressure on food price inflation. 

“Given these developments, we have raised our inflation forecast to 5.3% in 2022 from 4.7% previously and because of rising domestic inflation and the necessity of keeping pace with South African interest rate movements (the Namibia dollar is pegged one-to-one with the rand), we expect the Bank of Namibia to raise the repo rate by a further 100 bps to 5.25%. 

The Ministry of Finance's revenue collection targets and expenditure outlays reflect a conservative growth outlook.

Nevertheless, modest fiscal slippage is expected in the medium term amid a slump in customs revenues, rising interest payments, and a tepid pace of reforms aimed to improve revenue collection. 

The successful execution of the budget also rests heavily on continued restraint in personnel expenses and a reduction in goods and services expenditures. 

“We forecast the budget deficit to narrow moderately from a gaping deficit of 9.1% of GDP in the 2021/22 fiscal year (FY, ending in March) to one of 6.0% of GDP in the 2022/23 FY, thanks to improved tax revenue growth coupled with planned prudent public expenditure,” said the PSG report noted. 

The company added that the fiscal outlook had improved somewhat, thanks to expected higher mineral tax revenues and an upward revision to the level of nominal GDP.

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Last modified on Sunday, 29 May 2022 10:48
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