Economic growth expected to wane this year
Economic growth is expected to decline from 4.2% last year to 3% this year before it recovers slightly in 2025 to 3.2%, PSG Konsult said in its forecast of the Namibian economy.
“Economic growth slowed in the second quarter of 2024 due to weaker mining and agricultural output, following a strong start to the year in the first quarter. Softer demand for Namibia’s commodity exports and the local drought took their toll,” the report notes.
“The outlook for mining is mixed. Diamond prices are under pressure, uranium output is expected to pick up and investments in oil exploration will continue, yet at a slower pace. We forecast real gross domestic product (GDP) growth to slow from 4.2% in 2023 to 3.0% in 2024, and then 3.2% in 2025,” PSG said.
PSG added: “We expect the current account deficit to narrow from the gaping 14.9% of GDP in 2023 to 11.9% of GDP in 2024 and 8.4% in 2025. In the near term, lower commodity import prices, slower growth in mineral exploration-related services payments and higher customs union revenue receipts will mitigate a slowdown in exports. Over the medium term, the current account deficit will widen in nominal terms, as substantial foreign direct investment (FDI) projects will require foreign services,” PSG said.
Historic gap
Lower inflationary pressures improved PSG’s short-term inflation outcomes, it said.
“The recent lower inflation outcomes improve our short-term inflation, yet we still foresee rising food price inflation later in the year and into Q1 2025. Transport price inflation will be muted amid a lower oil price and a stronger currency. We project average inflation to fall from 5.9% last year to 4.3% in 2024 and 3.9% in 2025,” PSG said.
In line with a rate cut taken by the central bank, PSG was correct in its assessment that the Bank of Namibia would cut the repo rate by 25 basis points for the fourth quarter of 2024.
“The BoN is maintaining a historically wide gap between the Namibian and South African repo rates to support private consumption, given the adequacy of reserves. We anticipate the central bank will cut its policy rate by 25 basis points to 7.25% in the fourth quarter of 2024,” it said.
Moreover, the report added: “We project real GDP growth to slow from 4.2% in 2023 to 3.0% in 2024 on the back of lower diamond exports and severe domestic drought conditions. According to our forecast, there will be a slight uptick in growth in 2025 as monetary easing and stimulus measures in the US and China will gradually improve the external outlook. Furthermore, better rainfall is anticipated for Namibia’s 2024/25 agricultural season.”
Under pressure
The production of synthetic diamonds is expected to bring local diamond production under pressure, as well as a demand reduction.
“We anticipate that diamond production will be under pressure in the second half of the year, due to the reduction in output in response to global diamond prices remaining below pre-pandemic levels. The outlook for diamond exports is uncertain due to the threat from synthetic diamonds, the sanctions against Russian diamonds, and weak Chinese demand,” PSG said.
PSG noted further: “We expect the lower diamond exports will weigh on government revenues, widening the budget deficit to 4.6% of GDP in the 2024/25 fiscal year (FY) from 3.7% in the 2023/24 FY. Fortunately, higher customs revenues and improved non-mineral tax collections will stem the deterioration in the fiscal balance.”
“Economic growth slowed in the second quarter of 2024 due to weaker mining and agricultural output, following a strong start to the year in the first quarter. Softer demand for Namibia’s commodity exports and the local drought took their toll,” the report notes.
“The outlook for mining is mixed. Diamond prices are under pressure, uranium output is expected to pick up and investments in oil exploration will continue, yet at a slower pace. We forecast real gross domestic product (GDP) growth to slow from 4.2% in 2023 to 3.0% in 2024, and then 3.2% in 2025,” PSG said.
PSG added: “We expect the current account deficit to narrow from the gaping 14.9% of GDP in 2023 to 11.9% of GDP in 2024 and 8.4% in 2025. In the near term, lower commodity import prices, slower growth in mineral exploration-related services payments and higher customs union revenue receipts will mitigate a slowdown in exports. Over the medium term, the current account deficit will widen in nominal terms, as substantial foreign direct investment (FDI) projects will require foreign services,” PSG said.
Historic gap
Lower inflationary pressures improved PSG’s short-term inflation outcomes, it said.
“The recent lower inflation outcomes improve our short-term inflation, yet we still foresee rising food price inflation later in the year and into Q1 2025. Transport price inflation will be muted amid a lower oil price and a stronger currency. We project average inflation to fall from 5.9% last year to 4.3% in 2024 and 3.9% in 2025,” PSG said.
In line with a rate cut taken by the central bank, PSG was correct in its assessment that the Bank of Namibia would cut the repo rate by 25 basis points for the fourth quarter of 2024.
“The BoN is maintaining a historically wide gap between the Namibian and South African repo rates to support private consumption, given the adequacy of reserves. We anticipate the central bank will cut its policy rate by 25 basis points to 7.25% in the fourth quarter of 2024,” it said.
Moreover, the report added: “We project real GDP growth to slow from 4.2% in 2023 to 3.0% in 2024 on the back of lower diamond exports and severe domestic drought conditions. According to our forecast, there will be a slight uptick in growth in 2025 as monetary easing and stimulus measures in the US and China will gradually improve the external outlook. Furthermore, better rainfall is anticipated for Namibia’s 2024/25 agricultural season.”
Under pressure
The production of synthetic diamonds is expected to bring local diamond production under pressure, as well as a demand reduction.
“We anticipate that diamond production will be under pressure in the second half of the year, due to the reduction in output in response to global diamond prices remaining below pre-pandemic levels. The outlook for diamond exports is uncertain due to the threat from synthetic diamonds, the sanctions against Russian diamonds, and weak Chinese demand,” PSG said.
PSG noted further: “We expect the lower diamond exports will weigh on government revenues, widening the budget deficit to 4.6% of GDP in the 2024/25 fiscal year (FY) from 3.7% in the 2023/24 FY. Fortunately, higher customs revenues and improved non-mineral tax collections will stem the deterioration in the fiscal balance.”
