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The Namibian Economy: RMB View

Namibia: The Namibian economy sank even deeper into recession after 3Q18 GDP came in at -0.8%, marking the tenth consecutive quarter of negative economic growth. With fishing, construction, manufacturing, trade, hospitality, health and government sectors all contracting, the road to economic recovery is becoming increasingly daunting, at a stage where electricity and water is the only sector growing above its long-term average. The electricity performance was supported by strong inflows into the Ruacana hydro power plant increased electricity output, resulting in fewer electricity imports.

The AfDB funded economic stimulus package, which will deploy N$1bn in the current fiscal year and N$1.4bn in the following fiscal years, is expected to contribute to lifting the economy out of recession. However, based on the magnitude of the contraction, the stimulus package is way too small to turn an N$190bn economy. Furthermore, throwing even more money at the economy and resuscitating loss-making state-owned enterprises is tantamount to flogging a dead horse. We therefore maintain our core forecast to an optimistic 0.2% in 2018 and 1.4% for 2019, with a weak medium-term outlook.

Trade data: A silver lining

Third quarter data shows increasing international trade, as exports trumped imports, resulting in a sharp narrowing of the country’s trade deficit. The strong export performance was the result of increased exports of diamonds, copper and metal ores, coupled with a once-off export of a vessel, which boosted export numbers even further. And, despite a weak economic performance, the economy managed to increase imports by 16%, bolstered by imports of intermediate goods (copper cathodes, fuel, vehicles, boilers and other metal ores and concentrates). These are all significant inputs to domestic production processes and, as such, are positive lead indicators. Accordingly, the IJG reported one of the largest improvements in its leading indicator for the Namibian economy earlier this week, continuing its upward trend for the fourth consecutive month and suggesting a silver lining for the domestic economy. This crucial improvement will narrow the balance of payment deficit, given the significant capital inflows as pension funds repatriate funds to comply with the September Regulation 28 deadline. Coupled with the AfDB funding, this will be the game changer for the fourth quarter, breaking the 10-quarter recession streak and return the economy back to positive growth – albeit weak – we will take any growth at this stage!

Inflation: Rising distribution cost push inflation higher

Rising energy costs continued to push domestic inflation higher through November, with the latest print lifting to 5.6%, which is significantly higher than our inflation expectations. After rising distribution costs pushed food inflation upwards last month, we expect to see a continuation of the same trend this month, with the price pressure spilling over to consumer durables. In this regard, beverages, appliances, consumer electronics and furniture inflation have begun to lift in tandem with rising distribution costs – which increased after diesel prices rose by 50c in October and by another 70c in November. The direct impact can be seen in the rapid acceleration of transport inflation to 13.8%.

However, the diesel price has been cut by 40c in December, after similar over-recoveries from the National Energy Fund in November. However, we do not believe the lower fuel costs to be passed on to consumers during December and January, and therefore expect to see transport inflation remaining upwardly sticky. As for next year, we expect a downward revision to rental inflation, which according to our estimates has contracted by 8.2% compared to the current 2.6% increase. This should ultimately lower the housing inflation and, as the biggest component in the inflation basket, reduce the overall inflation profile for next year. So, it is the lower housing inflation that will keep inflation expectations within bounds, despite the stubbornly high transport inflation – which is about the only good news for the struggling consumer at this stage.

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