12 JUNE SA RECESSION AFFECTS NAMIBIA

 
by Margreth Nunuhe

 

WINDHOEK – The recession in South Africa has come at a crucial time for Namibia and could further damage the country’s already ailing economy.
 

Namibia was already trying to tackle its public debt challenge as well as liquidity shortages, when news of its southern neighbour’s recession hit. Namibian economic researcher Mally Likukela told The Southern Times it is no surprise that South Africa going to be in a recession but that the development will greatly affect Namibia.
 

Last week, South Africa, Africa’s second biggest economy, fell back into recession, for the second time in eight years.

The South African statistics agency released data showing that the country’s economy shrank by 0.7 percent in the first quarter of 2017, following a 0.3 percent contraction in the final three months of 2016.
 

A recession is defined as two consecutive quarters of the economy shrinking.
 

Except for agriculture and mining, all industries experienced a sharp decline in trade, manufacturing output and a fall in household spending.
 

“Following negative growth of 0.3 percent in the final quarter of 2016, the South African economy has yet again contracted by 0.7 percent, thus the technical recession that they have managed to dodge in the last few years has finally caught up with them,” said Claudia Boamah, an economic analyst at Capricorn Asset Management.
 

But many economic analysts had predicted that that economy would rebound as better economic times are expected for the Southern African region in 2017 due to revival of commodity prices and rains that were helping Africa’s most-industrialised economy recover from the 2015 drought.
 

Primary industries in South Africa grew by 14.9 percent while the secondary and tertiary industries lagged behind at -3.4 and -2.0 percent, respectively.
 

Estimated annual GDP was about R3.1 trillion and annual growth fell from 1.3 percent in 2015 to 0.3 percent in 2016.

With the uncertainty and fears looming in the South African economy, Namibia’s financial markets could be affected because of its economic dependence on South Africa.
 

“There will certainly be fear and panic in the financial markets in Namibia too given the integration between the two markets. Take in mind that the majority of key financial market players are South African owned, so decision on how to mitigate the challenging times in South Africa will have implication to Namibian located businesses as well,” Likukela pointed out.
 

He added that the Namibia Stock Exchange (NSX) closely mimics the Johannesburg Stock Exchange (JSE) and thus the market jitters observed at the JSE will be filtered through to the NSX.
 

“Firstly, Namibia’s main financial assets are priced or benchmarked against those of South Africa, so the recession will disturb the pricing of such assets and eventually the disturbance will be transmitted to Namibian financial assets or instruments,” said Likukela.
 

He maintained that in order to support the ailing economy, the South African Reserve Bank would have to cut its monetary policy rate and due to the submission nature of the Namibian monetary policy, it would have to follow suit. But Likukela said that a cut in interest rates will not help Namibia’s fight against high inflation and that further hikes in inflation will continue to put pressure on already indebted Namibians.
 

But Boamah is of the opinion that although credit ratings have a bearing on the policy rate and are influenced by a country’s growth prospects, ratings agencies recognize that it is too early to deliver an assessment based on this statistical release.

“Furthermore, negative first quarter growth seems to be a perpetual feature in the South African economy and is usually succeeded by a rebound in the second quarter,” she maintained, adding that on the whole, the recession may very well dissipate by the end of the next quarter but a strong recovery such as that of the second quarter of 2016 is unlikely.
 

She further stressed that the outlook for South Africa in 2017 is less optimistic as several authorities have revised their growth expectations for the year including the South African Reserve Bank (SARB) whose forecast has been reduced by 0.2 percent to exactly 1 percent.
 

“Despite the weak growth forecasts, inflation (5.3 percent) is going in the right direction therefore the repo rate should remain at 7 percent for now and Bank of Namibia will take a similar position. The strength of the Rand, in the face of political risk and consequences also supports the maintenance of the central bank’s rate in South Africa and Namibia as well,” she maintained.

The South African currency fell by 1.2 percent against the US dollar after the GDP figures were released 6 June 2017.
 

South Africa’s recession come just on the heels of a downgrade to junk status or sub-investment grade on 3 April 2017 by global ratings agency Standard & Poor’s (S&P).
 

The Cabinet reshuffle by President Jacob Zuma, in which Finance Minister Pravin Gordhan and his deputy Mcebisi Jonas were dismissed from their ministerial positions, were among reasons cited for the rating to junk status, as the succession of the Finance Ministers seem to shake investors’ confidence in that country.
 

Likukela is concerned that the implications for either an absolute downgrade or negative outlook will certainly be dire for South Africa and by extension Namibia too, saying that Namibia will not be spared if investors start pulling out of South Africa.
 

“Since the SARB will cut interest and Namibia will have to follow suit to avoid a large interest rate differential, capital outflow will be exacerbated. Namibia and its ambitious Harambee Prosperity Plan and NDP5 will be seriously compromised as they both need all the investment (FDI) they can get their hands on,” he pointed out.

 

https://southernafrican.news/2017/06/12/sa-recession-affects-namibia/

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