Thursday, July 06, 2017 2:50 PM/BMI Research
BMI View : Surging uranium production in Namibia will drive an acceleration of headline real GDP growth over the coming quarters. That said, economic activity outside of the mining sector will remain weak in light of soft investment and elevated inflation.
After real GDP plunged in 2016, we expect the Namibian economy to recover in the coming year, albeit gradually.
Preliminary data suggests that real GDP growth decelerated from 5.7% in 2015 to just 0.3% in 2016, below our already tepid estimate of 1.5%, due to plummeting construction activity and a fall in agricultural production (see 'Uranium Mining Will Provide Major Tailwind To Growth', December 9 2016).
In the coming quarters we see some upside. The Husab uranium mine, which began production in December 2016, will reach full capacity in Q317, becoming the third largest uranium-only mine in the world and driving export and mining sector growth.
That said, we have downgraded our forecast for growth in 2017 to 3.0%, from 4.5% previously, as activity outside of the mining sector will be weak.
Construction activity will continue to lag in light of fairly sluggish investment, while still-elevated inflation will sap domestic demand.
Uranium Mine Offers Upside To Growth
The Husab mine is likely to remain the economy's dominate source of growth over the coming quarters, driving exports and sustaining an estimated 2,100 jobs.
The project, a joint venture between China General Nuclear Power Holding Corp and the state-owned Epangelo Mining Company, is expected to produce up to 6.8 thousand tonnes (kt) of uranium oxide within 20 months, which will feed Chinese nuclear power plants.
Little Other Good News
Outside of the Husab mine, economic activity is likely to remain fairly weak. Low commodity prices have led to a slowdown in investment into the broader mining sector, with downside risks mounting.
In March, Vedanta Resources stated that it would likely shutter its Skorpion zinc mine at the end of the year if an ongoing labour dispute blocks its plans to alter and extend the mine's operations.
Meanwhile, government spending on infrastructure will continue to slow as it addresses its wide fiscal shortfall and rising debt (see 'Deficit will Narrow More Slowly Than Expected', March 23).
Soft investment will most directly affect the construction sector. Local research firm IJG Securities reports that building permits over the first two months of 2017 fell 15.0% y-o-y, the slowest start in seven years.
Given the construction sector's oversized impact on the labour market, a slowdown in construction activity will likely generate headwinds to consumption.
Consumption will be further weighed down by elevated inflation and interest rates. An extended drought has increased food prices, lifting overall inflation over recent months. Inflation came in at 8.2% y-o-y in January and 7.8% in February – post-financial crisis highs.
We expect inflationary pressures to remain high over H117, moderating slightly in H2 (see 'Rate Hikes Unlikely Despite Elevated Inflation', February 17).
Though in a context of elevated inflation, interest rates will remain accommodative, and we expect credit growth will be subdued as sluggish growth discourages lending.
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