Economy still facing headwinds

Economic growth projections for Namibia face substantial risks from global monetary policy tightening, adverse drought effects and weakened global commodity demand, the Bank of Namibia (BoN) says in its August Economic Outlook.The BoN projects real gross domestic product (GDP) growth to slow to 3.1% this year, then rise to 3.9% in 2025.“The global trend of tight monetary conditions could continue to dampen purchasing power and consumption,” according to the central bank. “Drought conditions threaten agricultural output, while strained water resources could disrupt various sectors. Additionally, weakened global commodity demand - particularly for diamonds and zinc - could lead to a deterioration in the mining sector&#039;s performance,” the BoN adds.The central bank’s latest forecast for 2024 represents a downward revision from the 3.7% growth anticipated in the March 2024 Economic Outlook update. This adjustment reflects worse-than-expected performance in both the primary and construction sectors compared to earlier projections, the BoN states.Primary industryPrimary industries are expected to contract this year due to drought and reduced demand for minerals, with growth projected at -2.0% compared to 9.7% in 2023. A recovery is anticipated in 2025, with growth forecast at 3.1%. This trajectory is influenced by performance in agriculture and mining, according to the BoN.The March 2023 Economic Outlook update had previously projected growth of 1.7% this year and 4.5% in 2025. This year’s growth estimate has been revised downward to account for the drought&#039;s impact on crop farming, the BoN says.AgricultureThe agriculture, forestry and fishing sector is projected to contract this year and show modest improvement in 2025. After a 3.4% contraction last year, the sector is expected to decline by 4.9% this year, with a slight contraction of 0.1% forecasted for 2025. The primary driver of this trend is the crop farming subsector, the BoN says.The subsector is anticipated to worsen from a 31.7% decline last year to a 34.5% contraction this year due to ongoing drought conditions. In contrast, the livestock subsector is expected to grow by 6.6% this year, down from 9.1% in 2023, due to increased livestock marketing prompted by the drought. However, growth in livestock is expected to decrease in 2025 as herd rebuilding begins, the BoN notes.DiamondsGrowth in diamond mining is expected to decline this year due to reduced global demand and high base effects from 2023. After a strong performance last year, the sector is projected to contract by 4.4% this year, with a recovery to 5.7% growth anticipated in 2025. The contraction is attributed to decreased demand for natural diamonds, shifts in luxury spending and increasing competition from lab-grown diamonds, the BoN explains. These factors have put downward pressure on diamond prices, leading producers to cut supply this year to support price recovery, it adds.UraniumThe BoN expects the uranium mining sector to slow down this year after strong growth last year. The projected growth rate for this year is 3.6%, compared to 24.3% in 2023. This slowdown is mainly due to stripping activities at certain mines, which are likely to affect production volumes, the BoN says.A rebound in growth is anticipated next year, with a forecasted rate of 5.2%. Growth estimates for 2024 and 2025 are unchanged from the March 2024 Economic Outlook update.Metal oresThe metal ores sub-sector is projected to contract this year and next year. Growth is expected to decline by 3.5% this year and 0.6% in 2025, following a 28.9% increase last year. This decline is due to reduced production in the gold and zinc subsectors, the BoN says. Gold production is anticipated to decrease due to resource depletion, while lower zinc production is linked to falling zinc prices, it adds.Oil exploration The other mining and quarrying sub-sector, which includes oil exploration, is expected to grow by 9.2% this year and 4.6% in 2025, down from 37.2% last year. The slowdown this year is attributed to base effects from previous oil exploration and drilling, the BoN says.These projections have been revised upward by 0.5 percentage points for this year and 0.3 percentage points for 2025 compared to the March 2024 Economic Outlook update.Secondary industryThe outlook for the secondary industry this year and next year shows notable improvement in growth, driven by better performance in electricity and water, manufacturing and construction. Secondary industries are projected to grow by 4.9% this year, up from 2.0% in 2023. This growth is expected to continue into next year, with a forecasted rate of 4.7%. ManufacturingThe manufacturing sector is expected to recover significantly following a contraction last year. Growth is projected at 3.9% this year, accelerating to 4.4% in 2025, after a 3.2% decline last year. The rebound is driven by gains in the beverage subsector, the BoN says.The subsector is anticipated to grow by 9.4% this year, up from a 29.2% decline in 2023, due to increased production of soft drinks. The grain mill products subsector is also expected to improve, with growth rates rising to 7.1% this year and 11.1% in 2025, up from 4.3% last year.Electricity and waterThe electricity and water sector, which experienced strong growth last year, is projected to grow at a more moderate pace. Growth is expected to be 9.4% this year and 4.5% in 2025. This performance is due to increased inflows into the Ruacana hydro plant, according to the BoN.Increased inflows are boosting electricity generation, as well as ongoing investments and operational efficiencies supporting sector expansion, the central bank says.ConstructionThe construction sector continues to lag within the secondary industries, despite a significant increase in government’s construction budget, the BoN says.After contracting by 0.2% last year, the sector is projected to grow by 3.5% this year and 7.1% in 2025. The growth forecast for 2024 was recently revised down from 11.6%, as reported in the March 2024 Economic Outlook update. This revision reflects the sector&#039;s current performance, where low execution rates have limited a stronger recovery, according to the BoN.Tertiary industryThe tertiary industry is projected to grow this year and next year. Growth is expected to be 4.2% this year and 4.0% in 2025, following a 2.7% increase last year. This growth is largely driven by improvements in wholesale and retail trade, public administration and defence, as well as hotels and restaurants. The growth estimate for this year has been revised down by 0.2 percentage points from the figures published in the March 2024 Economic Outlook update.Wholesale and retailWholesale and retail trade is expected to grow by 7.5% in both 2024 and 2025, up from 5.8% last year. This growth is driven by higher sales in wholesale and clothing sectors, as well as increased vehicle sales linked to tourism-related activities, despite ongoing inflationary pressures, the BoN says.TourismThe hotels and restaurants sector is projected to grow by 5.5% this year and 4.7% in 2025, following a 4.8% increase last year. This growth is supported by ongoing tourism activities, according to the BoN.Public admin, defenceThe public administration and defence sector is set for a “remarkable turnaround”, according to the BoN. After contracting by 0.7% last year, the sector is anticipated to grow by 4.5% this year and 2.9% in 2025. “The primary drivers of this growth are the planned recruitment of additional staff due to increased budgetary allocations and tax relief initiatives, which are expected to enhance consumption spending,” the BoN says.

Economy still facing headwinds

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