Economists slash Namibia’s economic growth forecasts

Government early in the year forecast that the economy would in 2006 grow by 4 percent, buoyed by exports of rough diamonds, the favourable investment climate and revenue from the Southern African Customs Union. First National Bank of Namibia economist and author Martin Mwinga, however, said that initial government projections did not factor in the negative impact of rising interest rates.

The Bank of Namibia has raised its key repo rate by a full percentage point to 8.0 percent in two stages since June this year and analysts say further increases are expected this year and the first quarter of next year.

Namibian inflation ‘ one of the lowest in the region ‘ has also crept up to the current 5.10 percent.

Commercial banks have raised rates twice this year, setting the bank rate and prime lending rate at 8 percent and 12.75 percent respectively.

Mwinga said that rising rates had resulted in a sharp decline in credit power amongst individuals and the corporate world. Mwinga also said that the demand for credit had gone down drastically.

“The 4 percent (economic growth) was too optimistic; we would put it at 3 percent this year. Demand for our products in a number of countries we are exporting to, is decreasing. On the domestic front, the fishing sector has not been doing well and it appears the mining industry will continue on the same trend,” Mwinga said.

“Consumers are sensitive to high interest rates and government never factored in that rates would go up,” he added.

Institute of Public Policy Research director Daniel Motinga could not give a definite figure of the rate of economic growth but said that because of rising rates it would be in the region of 3 percent.

“Interest rates could negatively affect consumer demand and the latest events could make 3 percent a reality,” Motinga said.

Namibia’s economy has been riding high on the back of a favourable investment climate, high demand for the country’s rough diamonds and a boom in the tourism industry.

Favourable international ratings have helped lift the country’s image in the eyes of the international investor.

The Namibian dollar (N$), which is linked one-on-one with the South African rand, has, however, experienced fluctuations during the second half of this year due to sliding gold prices and further gains in the United States dollar against the euro, the currency of South Africa’s main trading partners.

The rand (N$) hit an 11-week trough of 7.48/US$ early this week, pressurised by a sagging gold price along with a retreat in the euro.

Market analysts blamed the downward pressure mainly on gold’s plunge to below US$600 an ounce for the first time in two months as investors weighed bullion’s longer-term prospects in the face of falling oil prices.

Gold was on Wednesday evening hovering around US$580 an ounce and crude at US$63.50 a barrel, a bigger stumble on oil’s recent ascent, propelled steadily higher since 2002 by the war in Iraq, soaring Chinese demand, constrained oilfield and refinery production and, most recently, fears of a disruption to Iran’s exports.

The rand hit its weakest trough, 7.52/US$, in June this year and has so far depreciated by about 15 percent versus the dollar at the same time losing more than 18 percent on a trade-weighted basis.

By Thursday morning, the rand had extended gains as sentiments towards emerging markets improved, with dealers and traders predicting that the currency would gain further ahead of a statement from South African Reserve Bank governor Tito Mboweni.

September 2006
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