By Martin Mwinga
– Economic Review for 2007 & Outlook for 2008
– Global Economy
The outlook for the global economy changed materially over the last year, principally as a result of the extremely severe financial market fallout related to the US sub-prime mortgage market woes. Panic and uncertainties relating to the final resting place of sub-prime losses have had the effect of seizing up practically all-term lending.
Mortgage owners started to default and banks in the US tightened lending, developing into a full financial crisis by July 2007.
In response the Federal Reserve Bank in the USA started reducing interest rates to prevent a major financial crisis and stop the economy diving into a recession, an action that seems to have worked for now.
Global growth is expected to slow below the trend, in 2008, led by a slowing in US economic activity as rising oil, decline in disposable income and the aftermath of the sub-prime crisis are taking their toll.
US GDP growth is expected to slow further from 3.3% in 2006 to 2.0% in 2007, recovering slightly to 2.5% in 2008.
The two main reasons for the 2008 forecast are a decrease in expected 2008 housing starts units and a likely continuation of tighter credit conditions through around mid-2008.
Sub-Sahara Africa is projected to grow strong in both 2007 and 2008, due to high growth expected from oil producing countries such as Angola that will grow by more than 18 percent.
Namibian Economic Growth
Namibia has experienced several years of moderate economic growth, due to mainly strong performance in the diamond production. Growth averaged 4.5% over the period 2000-06.
Growth in the Namibian economy slowed from a revised 4.8% in 2005 to 4.1% in 2006 owing to a significant decline in the manufacturing sector (fish processing on shore). This subcategory declined by 38% in 2006 compared to a 4.5% decline in 2005, and is expected to continue its dismal performance.
We expect a combination of slowing global growth and higher domestic interest rates to slow GDP growth in Namibia from 4.1% to 3.8% in 2007 as household spending responds to the higher interest rate environment.
Personal disposable income is likely to remain under pressure in 2008, as the average rate of inflation remains high. The economy is only expected to grow by 3.5% in 2008.
The share of agriculture in GDP has fallen continually since independence, and currently hovers around 6.1%. This sector is dominated by meat products such as beef, mutton and goat.
Good rainfall in 2006 enticed farmers to restock, leading to a decline in the number of livestock marketed during the year, a slowdown of 4.0%. Farmers had to postpone the selling of some of their livestock for purposes of restocking after the good rainfall, despite high meat prices.
Data provided by the Meat Board of Namibia suggested a general increase in livestock marketed in 2007. Available quarterly data from the Bank of Namibia suggests that the agricultural output growth for 2007 should continue to be positive.
The mining sector is considered one of the main drivers for the Namibian economy and accounted for 10% of GDP in 2006, up from 8.7% in 2005 due to added production from the new Langer Heinrich uranium mine and Elizabeth Bay diamond mine.
Mining is dominated by diamond extraction, which accounts for roughly 8% of GDP. Mining still accounts for 45% of foreign-exchange earnings and roughly a third of fixed capital formation.
Output in the mining industry showed a sharp increase of 15.4% in 2006, coming off a low base -1.4% in 2005. Latest data for the first two quarters of 2007 showed 30% growth in Q1 and 11% decline in Q2. Overall growth is expected to be positive for 2007, especially with the uranium mine, Langer Heinrich, adding to mining production. However, zinc production is expected to decline in 2007, due to some production stoppages. Mining is still expected to perform well in 2008.
Output in diamond mining rose sharply in 2006, as a result of the new Elizabeth Bay plant at Lǟ