Economic Reprieve On the Cards?

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By Desie Heita Windhoek An economic reprieve might be on the cards with some analysts hoping for events to immediately return to normality. This week the prices for September oil delivery dropped by US$20 from US$147 per barrel recorded in mid-July to US$127 per barrel. This is partly due to the economic slowdown in the US market. At home the intertwined economies of Namibia and South Africa are expected to start “bouncing back” as from the second quarter, whose figures – mainly mining production – are expected to be promising. Indications of this, says Urvesh Desai of Old Mutual Investment Group, could be seen on indicators such as the food producer price index that has started to come down. This bouncing back, however, would only yield results in the long-term and most importantly indicates that “a probability of an outright recession is not likely”, said Desai. Thus in the medium-term, consumers should brace for an elongated period of squeeze with a slow down in economic growth likely to remain throughout 2008 and the first quarter of 2009. In this period, the economy might spit out some bad numbers, more so in the South African economy than the Namibian economy. Desai expects South Africa’s inflation to peak at 13 percent as fuel, food and electricity prices go up. A 13 percent peak in inflation would be excessively out of the South African Reserve Bank target band of under 6 percent. Namibia’s annual inflation is already at a record high of 9,7 percent, as at May, up from an average of 8 percent recorded earlier in the quarter. Luckily for Namibia, says Desai, consumers reacted earlier to rein in their spending when the Bank of Namibia started with its tightening mechanism in mid-2006. South African consumers took too long to respond – in March credit extension in South Africa was at 22,6 percent compared to 12,8 percent for Namibia – and as a result the reserve bank keeps hiking the interest rates to get the desired response. A better second quarter would without doubt help build investor confidence, which diminished in the first quarter when inflation shot through the roof with fears that the global economy may slip into a stagnation last seen in 1990. The power crisis experienced by Eskom did not help build positive sentiments, not when the power cuts halted production at mines, effectively impacting GDP growth. “The issue of Zimbabwe added to the negative sentiments, driving panic and fear across the market,” said Desai. “Then there were sentiments that central banks [in emerging market] are behind the curve in reining in the inflation,” said Desai.