FNB Positive About GDP Growth

FNB Namibia says the 2014 economic outlook remains positive. Daniel Motinga, Head of Research at FNB Namibia, in his report issued this wek said growth outlook remains fairly positive even though first quarter growth did disappoint at 1,6% in year-to-year unadjusted terms.

“This suggests that there are downside risks to our growth forecast. Crucially, there are indications that the volatility in the global growth environment will continue and, furthermore, that there are notable headwinds emanating in the livestock export environment due to stringent import requirements that were implemented by South Africa in May. This is affecting livestock exports negatively,” he said.

He added that the primary sector, which was generally affected by global growth dynamics, declined during the first quarter and said that agriculture was down 19% fishing declined by 13% and mining contracted by 3,8%.

On interest rates, Motinga said the hiking of the repo rate by 25 basis points was unexpected as the bank had thought that the committee would wait for the South African Reserve Bank to move in July.

“Even though the BoN does not have a clear mandate for price stability nor an explicit inflation target, there was no doubt that the hiking cycle would eventually begin as Consumer Price Index breached the psychological threshold of 6% in May. However, we are surprised by the 25 basis points move, particularly given the central bank’s concern about the erosive impact of the trade deficit on its rand reserves,” he said.

He said given that the central bank is worried about the effect of what it terms “unproductive imports” on foreign reserves, especially motor vehicles, FNB believes the MPC should have sent a much ger signal and hiked by 50 basis points.

“Therefore, we think that the Monetary Policy Committee erred on the side of caution in light of slowing growth, with first quarter GDP printing below two percent but needed to send a signal on inflation expectations and credit demand. We have factored in an additional 25 basis points in August,” Motinga said.

On inflation, Motinga said there are g upside risks.

“We expect the current volatility in the exchange rate environment to persist, although we are not factoring in any significant blowouts, and this is likely to play a critical role in calculating monetary policy,” he said.

On another interesting note, Motinga said public administration, which is a proxy for the government in the national accounts, contracted by 7,3% during the first quarter.

“Given that it is an election year, we expect a ramp up in spending over the new few months. We still expect the deficit to come close to 6% of GDP for this fiscal period.”

Source : The Namibian