Slight improvement in GDP but economic growth still weak – Schade

While first quarter 2018 gross domestic product (GDP) data, released by the Namibia Statistics Agency (NSA) last week, showed a slight improvement compared to the first quarter of 2017, Namibia's economic growth remained weaker than the first quarter performances since 2013 when the economy contracted by 2.3 percent. In addition, statistical revisions for the fourth quarter 2017 indicate that the economic performance was weaker than the initial data suggested.

Quarterly data is preliminary and based on a smaller sample than the final annual national account data and should therefore be treated with some caution. Final quarterly data for the first three quarters in 2017 showed a stronger economic performance than the initial data. In contrast, revisions to the fourth quarter data 2017 showed a stronger contraction than initial data suggested � 1.5 percent instead of 1.0 percent. But this figure might still be up for change, commented Klaus Schade, research associate at the Economic Association of Namibia.

The most recent NSA data indicates that GDP in real terms dropped slightly by 0.1 percent during the first quarter 2018. Schade noted that real value added dropped by 1.5 percent compared to the fourth quarter 2016 rather than 1.0 percent. This, he said, was mainly caused by a strong contraction in the electricity and water sector.

Value added declined by 18.8 percent compared to the initial decline of 5.5 percent. Hotels and restaurants � as a proxy for the tourism industry � also contracted stronger than previously estimated -2.9 percent compared to -0.4 percent. Similarly, value added in the wholesale and retail sector shrunk by 3.8 percent rather than 2.5 percent. Of concern for government is certainly that tax revenue dropped by 2.8 percent instead of 1.8 percent, he stated.

Also, the agricultural sector grew by 1.4 percent in the first quarter 2018, which is much weaker than the growth of 16.5 percent during the first quarter 2017, but better than first quarter results since 2013. The strong growth in 2017 was caused by contractions in the previous four years 2013 to 2016 and hence a low base.

Likewise, the mining sector performed weaker than during the first quarter 2017 and expanded by just 4.7 percent compared to 14.0 percent. Similar to the agricultural sector, the strong performance of the mining sector in the first quarter 2017 can be explained with the contractions during the first quarters in previous years and hence a low base.

Schade pointed out that value addition of the manufacturing sector declined by 2.1 percent, which could be explained by the performance of the primary sectors (agriculture, fishing and mining), since the manufacturing sector relies on inputs from these sectors. Value addition in the fishing sector declined by 13.6 percent, which had a negative impact on fish processing.

Meanwhile, the construction sector grew by 23.7 percent in the first quarter, the strongest performance since 2015 when the sector expanded by 30.0 percent. The strong performance is caused by the low base a year earlier due to the contraction. Value addition remained, however, below values recorded between 2014 and 2016.

The first quarter data for 2018 suggests that the construction sector is bottoming out. Real value added increased to N$1,208 million, which is better than in any quarters during 2017. This could be good news for the labour market, since the construction sector is labour-intensive and hence growth is expected to result in job creation. This in turn would support the wholesale and retail trade sector, since additional jobs create additional income and hence additional spending power, said Schade.

He also cautioned that external events beyond can dampen growth prospects during the remainder of the year. The 'trade war' started by the USA resulted in retaliatory measures by China, the EU and India. Quarterly oil prices have reached the highest levels since the fourth quarter 2014. Both events can result in a drop in demand, production and eventually commodity prices that are going to affect Namibia, Schade said.

Source: New Era Newspaper Namibia