Category: GDP

Key Highlights

• Global growth is projected at 3.1% in 2024 and 3.2% in 2025, a 0.2% higher than the October 2023 forecast.
• The forecast for 2024-25 is below the historical average of 3.8% due to elevated central bank policy rates to fight inflation, high debt, and low underlying productivity growth.
• Advanced Economies: Growth is projected to decline slightly from 1.6% in 2023 to 1.5% in 2024, before rising to 1.8% in 2025. This includes an upward revision of 0.1 percentage point for 2024 due to stronger-than-expected US growth, offset by weaker growth in the euro area.
• United States: Growth is projected to fall from 2.5% in 2023 to 2.1% in 2024 and 1.7% in 2025. This is due to the lagged effects of monetary policy tightening, gradual fiscal tightening, and a softening in labor markets.
• Euro Area: Growth is projected to recover from 0.5% in 2023 to 0.9% in 2024 and 1.7% in 2025. This recovery is expected to be driven by stronger household consumption as the effects of the shock to energy prices subside and inflation falls.
• United Kingdom: Growth is projected to rise modestly from 0.5% in 2023 to 0.6% in 2024, then to 1.6% in 2025. This is due to the waning effects of high energy prices and an easing in financial conditions.
• Japan: Growth is projected to decelerate from 1.9% in 2023 to 0.9% in 2024 and 0.8% in 2025, reflecting the fading of one-off factors that supported activity in 2023.

• Emerging Market and Developing Economies: Growth is expected to remain at 4.1% in 2024 and rise to 4.2% in 2025. This includes an upward revision of 0.1% for 2024 due to upgrades for several regions.

• Sub-Saharan Africa, growth is projected to rise from an estimated 3.3 percent in 2023 to 3.8 percent in 2024 and 4.1 percent in 2025, as the negative effects of earlier weather shocks subside and supply issues gradually improve. The downward revision for 2024 of 0.2 percentage points from October 2023 mainly reflects a weaker projection for South Africa on account of increasing logistical constraints, including those in the transportation sector, on economic activity.

• Global headline inflation is expected to fall to 5.8% in 2024 and 4.4% in 2025.
• Risks to global growth are broadly balanced with potential upside from faster disinflation and downside from new commodity price spikes and supply disruptions.

Figure 1: Global Real GDP growth rates, Annual % Changes (2005-2025)

Source: IMF, January 2024

• World trade growth is projected at 3.3% in 2024 and 3.6% in 2025, below its historical average growth rate of 4.9%.
• These forecasts are based on assumptions that fuel and nonfuel commodity prices will decline in 2024 and 2025 and that interest rates will decline in major economies.
• Policymakers' challenge is to manage the final descent of inflation to target, calibrate monetary policy, and adjust to a less restrictive stance.
• A renewed focus on fiscal consolidation is needed to deal with future shocks, raise revenue for new spending priorities, and curb the rise of public debt.
• More efficient multilateral coordination is needed for debt resolution, to avoid debt distress and create space for necessary investments, as well as to mitigate the effects of climate change.

Forces Shaping the Outlook

• The global economic recovery from the COVID-19 pandemic, Russia’s invasion of Ukraine, and the cost-of-living crisis is proving surprisingly resilient.
• Inflation is falling faster than expected from its 2022 peak, reflecting favorable supply-side developments and tightening by central banks.
• High-interest rates aimed at fighting inflation and a withdrawal of fiscal support amid high debt are expected to weigh on growth in 2024.

Growth Resilient in Major Economies

• Economic growth is estimated to have been stronger than expected in the second half of 2023 in the United States, and several major emerging market and developing economies.
• Inflation is subsiding faster than expected, reflecting favorable global supply developments.
• High borrowing costs are cooling demand, resulting in high mortgage costs, challenges for firms refinancing their debt, tighter credit availability, and weaker business and residential investment.

Fiscal Policy Amplifying Economic Divergences

• Governments in advanced economies eased fiscal policy in 2023.
• In emerging markets and developing economies, the fiscal stance is estimated to have been neutral.
• The fiscal policy stance is expected to tighten in several advanced and emerging markets and developing economies to rebuild budgetary room for maneuvering and curb the rising path of debt.

Risks to the Outlook

• Upside risks include faster disinflation, slower-than-assumed withdrawal of fiscal support, faster economic recovery in China, and artificial intelligence and supply-side reforms.
• Downside risks include commodity price spikes amid geopolitical and weather shocks, persistence of core inflation, faltering of growth in China, and disruptive turn to fiscal consolidation.

Policy Priorities

• As inflation declines toward target levels across regions, the near-term priority for central banks is to deliver a smooth landing.
• With fiscal deficits above prepandemic levels and higher debt-service costs, fiscal consolidation based on credible medium-term plans is warranted to restore room for budgetary maneuver.
• Intensifying supply-enhancing reforms would facilitate both inflation and debt reduction and enable a durable rise in living standards.
• Strengthening resilience through multilateral cooperation is vital for mitigating the costs of the separation of the world economy into blocs

Executive summary

Namibia’s economic performance in the third quarter of 2023 exhibited a resilient upward trend in economic activities, with notable increases in mining and quarrying, agriculture and forestry, and transport and storage. However, certain sectors faced challenges despite the overall economic recovery. South Africa’s economic landscape in the third quarter of 2023 deteriorated, with notable declines in five key sectors. After two consecutive quarters of growth, South Africa's Gross Domestic Product (GDP) contracted with the poor performance evenly spread between industries on the production side of the economy.

Analysis

Namibia

During the third quarter of 2023, the Namibian economy recorded a growth rate of 7.2% when compared to the 5.4% recorded in the corresponding quarter of 2022 (Figure 1). This quarter-on-quarter increase in economic performance was primarily driven by expansions in the following sectors.

• Mining and Quarrying: The mining and quarrying sector recorded robust growth, marking 51.7% surpassing the 30.6% growth recorded during the same period in 2022. This growth is primarily attributed to activities in the mining of metal ores, uranium mining, and sustained investments in mineral exploration as oil and gas exploration activities pick up pace.
• Agriculture and Forestry: The agriculture and forestry sector registered an increase of 19.9%. The upsurge was primarily attributed to the livestock farming subsector, which experienced a growth of 25.6%. The increase was associated with improved livestock marketing during the period under review.
• Transport and Storage: The transport and storage sector posted a growth of 8.8% during the quarter under review, compared to a decline of 5.0% that was recorded in the corresponding quarter of 2022. The strong performance in transport was attributed to an increase in passenger and aircraft movement due to improved activities related to tourism.

On the downside, certain sectors recorded declines:

• Construction Activities: The construction sector registered a significant decline, with real value-added contracting by 30.6%. This poor performance was particularly evident in government expenditure on construction, which posted a contraction of 51.8%. The decrease was mainly due to the reduction in government spending on construction related to transportation infrastructure projects
• Manufacturing: The manufacturing sector exhibited a notable decline of 8.7%, which marked a significant downturn from the 11.2% growth recorded in the second quarter of 2022. The performance in the sector was mainly driven by the basic non-ferrous metals subsector which registered a decline of 74.4%, due to the maintenance shutdown experienced    
• Health: The health and social work sector witnessed a 4.0% decline in contrast to the 8.5% decrease noted in the corresponding quarter of 2022. This performance was attributed to a reduction in employee compensation, stemming from fewer employees coupled with a decline in spending on goods and services

South Africa

During the third quarter of 2023, South Africa’s real GDP exhibited a decline of 0.2%, marking a notable deterioration compared to the robust 1.8% growth recorded in the corresponding quarter of 2022 (Figure 1). This quarter-on-quarter decline in economic performance was primarily driven by contractions in the following sectors.

• Agriculture: The sector experienced a decline of 9.6% from a significant robust growth of 31.4% observed in the same quarter of 2022, negatively impacting GDP growth by -0.3%. This was primarily due to decreased economic activities reported for field crops, animal products, and horticulture products
• Manufacturing: The manufacturing sector exhibited a notable decline of 1.3%, which marked a significant downturn from the 1.6% growth recorded in the second quarter of 2022, contributing 0.1% to the overall GDP growth, with the food, beverages, and tobacco division making the largest contribution to the decrease in the third quarter
• Construction: During the second quarter of 2023, the industry saw a decline of 2,8% mainly due to decreases in residential buildings, non-residential buildings, and construction works

However, certain sectors recorded growth:

• The transport, storage, and communication: The industry recorded a growth rate of 0.9%, which, while positive, marked a deceleration compared to the 3.4% growth recorded in the corresponding quarter of 2022. The growth stemmed from increased economic activities that were reported for land transport, air transport, transport support services, and communications
• The personal services: Personal services increased by 0.6%, primarily due to improved economic activities in the education and health sector, contributing 0.1% to overall GDP growth
• The finance, real estate, and business services: The sector increased by 0,5% in the third quarter of 2023, contributing 0,1% to overall GDP growth. The growth was underpinned by increased economic activities in financial intermediation, real estate activities, and other business services

Figure 1: Namibia vs. South Africa GDP Growth rates (Q3 2019-Q3 2023)

Source: NSA, STATSSA & HEI RESEARCH

Figure 2: Namibia GDP by activity % change Quarter 3 2022 vs Quarter 3 2023

Source: NSA & HEI Research

Figure 3: South Africa GDP by activity % change Quarter 3 2022 vs Quarter 3 2023

Source: STATS SA & HEI Research

Outlook

Namibia

Namibia's economy has shown strong growth, especially in mining and agriculture, despite challenges in construction and financial services. The mining sector, fueled by diamond and oil and gas exploration, has been a major contributor. Agriculture has proven resilient, benefiting from increased livestock marketing. The construction sector faced setbacks, mainly due to reduced government spending on transportation infrastructure. However, positive developments like green hydrogen projects and infrastructure loans suggest a potential improvement in 2024. Risks remain, including uncertainties in the investment environment, slow progress in power generation, growing debt, global developments, high living costs, expensive imports, water supply interruptions affecting mining, and the persistent threat of drought. Despite these challenges, the outlook for 2024 seems promising due to strategic initiatives, financial commitments, and positive performance in key sectors, contributing to Namibia's overall economic resilience and growth potential.

South Africa

South Africa’s economy is facing mounting economic and social challenges. While South Africa’s electricity load-shedding has declined, domestic growth in the near term is likely to remain muted.

The longer-term economic outlook is, however, clouded by persistent risks to the inflation trajectory, the negative effects of climate change, outbreak of avian flu, unprecedented energy, and logistical constraints. Although domestic economic activity weakened the trajectory of GDP growth (and potential growth) going forward will be determined largely by the pace at which structural reforms in the energy and logistics sectors materialize. The SA Reserve Bank has forecasted South Africa’s GDP to grow to 1.2% and 1.3% in 2024 and 2025, respectively, due to an expected decrease in load-shedding.

Executive summary

Namibia's economic performance in the second quarter of 2023 exhibited a mixed picture, with notable declines in construction, agriculture, and the public administration sector. However, the mining and electricity sectors contributed positively to overall growth, although at a slower pace compared to the previous year's performance. South Africa's economic landscape in the second quarter of 2023 displayed signs of recovery, with notable growth in key sectors such as agriculture, manufacturing, mining, finance, and personal services. However, certain sectors, including transport, electricity, and trade, faced challenges resulting in declines, albeit with varying impacts on overall GDP growth.

Analysis

Namibia

During the second quarter of 2023, the Namibian economy recorded a growth rate of 3.7%, which, while positive, marked a deceleration compared to the robust 8.5% growth recorded in the corresponding quarter of 2022 (Figure 1). This quarter-on-quarter decline in economic performance was primarily driven by contractions in the following sectors.

• Construction Activities: The ‘Construction’ sector experienced a substantial decline, with real value-added contracting by 35.9%. This poor performance was particularly evident in government expenditure on construction, which saw a significant decline of 54.5%. The decrease in government investment in construction projects, especially those related to engineering works, contributed to the poor performance of the sector.
• Agriculture and Forestry: The 'Agriculture and Forestry' sector posted a decline of 31.9%. The significant downturn in this sector was largely attributed to a contraction of 55.0% in the crop farming subsector. This decline was a consequence of a drought experienced during the period under review.
• Financial Services: The ‘Financial Services’ activities sector experienced a decline of 2.6% in real value-added, in contrast to a growth of 11.4 % witnessed during the same period in 2022. The poor performance emanates from the banking subsector which registered a decline of 5.2% in real value added compared to 6.5% growth recorded in the same quarter of 2022. This was attributed to a deceleration in total deposits from all sectors of the economy (household, government, and private sector)
• Public Administration and Defense: The 'Public Administration and Defense' sectors decelerated, posting growth rates of 2.2%. This deceleration was driven by a reduction in compensation for employees due to a decrease in the number of employees, notably in the health sector.

On a more positive note, certain sectors recorded growth:

• Mining and Quarrying: The ‘Mining and Quarrying’ sectors exhibited significant growth of 32.0%, although it represented a decline from the impressive 64.4% growth recorded in the corresponding quarter of 2022. This performance was influenced by the subsector of diamond mining, which saw a reduced growth rate of 9.4%. This slowdown can be attributed to a high base effect compared to the same quarter in 2022.
• Electricity and Water: The 'Electricity and Water' sectors posted growth rates of 14.4%. This growth was primarily attributed to the electricity sub-sector, which saw a 15% increase in value-added. This increase was driven by higher quantities of electricity sold and increased domestic power production (Figure 2).

South Africa

During the second quarter of 2023, South Africa's real GDP exhibited a positive growth of 0.6%, marking a notable improvement compared to the previous year's corresponding quarter, which had seen a decline of 0.8% (Figure 1). This resurgence in economic activity was attributed to the following sectors that demonstrated substantial growth:

• Agriculture: The agriculture sector experienced robust growth of 4.2%, rebounding from a significant 11.8% decline observed in the same quarter of 2022. This sector's resurgence contributed 0.1 % to overall GDP growth and was primarily driven by increased economic activities in field crops and horticulture products.
• Manufacturing: The manufacturing sector exhibited a notable 2.2% growth, which marked a significant turnaround from the 5.6% decline recorded in the second quarter of 2022. This sector contributed 0.3 % to the overall GDP growth, with the petroleum, chemical products, rubber, and plastic products division making the most substantial contribution.
• Mining and Quarrying: The mining and quarrying sector also registered growth, with a 1.3% increase compared to a 3.1% decline in the same period of 2022. This growth was attributed to increased economic activities related to platinum group metals (PGMs), gold, other metallic minerals, and coal.
• Finance: The finance industry recorded a 0.7% increase, contributing 0.2 % to GDP growth. This growth was underpinned by increased economic activities in financial intermediation, insurance, and real estate.
• Personal Services: The personal services sector grew by 0.7%, primarily due to improved economic activities in the education and health sector. This sector contributed 0.1 % to overall GDP growth.

However, the following sectors experienced declines during the period under review:

• Transport, Storage, and Communication: The sector recorded a decline of 1.9%, negatively impacting GDP growth by -0.2 %. The decline was primarily a result of poor performance in land transport and transport support services sub-sectors.
• Electricity, Gas, and Water: The electricity, gas, and water sector saw a decline of 0.8%, mainly due to decreased electricity production and consumption.
• Trade, Catering, and Accommodation: During the second quarter of 2023, this industry recorded a decline of 0.4%, contributing -0.1 %age point to GDP growth due to reduced economic activities in the wholesale trade and retail trade (Figure 3).

Figure 1: Namibia vs. South Africa GDP Growth rates (Q2 2019-Q2 2023)

Source: NSA, STATSSA & HEI RESEARCH

Figure 2: Namibia GDP by activity % change Quarter 2 2022 vs Quarter 2 2023

Source: NSA & HEI Research

Figure 3: South Africa GDP by activity % change Quarter 2 2022 vs Quarter 2 2023

Source: STATS SA & HEI Research

Outlook

Namibia

Namibia's GDP growth trajectory is anticipated to experience a deceleration throughout 2023 and 2024 (Bank of Namibia, August 2023 Economic Outlook), primarily attributed to sluggish global demand and constrained growth within the agricultural sector. The domestic economy is predicted to moderate downwards to 3.3% in 2023 from the 4.6% registered in 2022, which is expected to moderate to 3.0% in 2024. The envisaged moderation in growth for 2023 primarily stems from subdued demand both internationally and domestically. Prevailing high levels of inflation and elevated interest rates are projected to dampen expenditure. This dampening effect has been further exacerbated by the diminished global demand, which has negatively impacted commodity prices, including key minerals that Namibia relies on for export.

South Africa

Economic conditions appear to have improved; the longer-term outlook mirrors the uncertainty of the global environment. Prices for commodity exports continue to weaken. In addition, energy supply remains unreliable and stronger El Nino conditions threaten the agricultural outlook. For 2023, the SA Reserve Bank’s forecast for South Africa’s GDP growth is slightly higher than in May, at 0.4% (from 0.3%). Energy and logistical constraints remain binding on the growth outlook, limiting economic activity and increasing costs.

1. Global outlook

There is an anticipated deceleration in global growth as per the July 2023 update by the IMF's World Economic Outlook (WEO). The growth rate, which stood at 3.5% in 2022, is predicted to decrease to 3.0% for the year 2023. The subdued projection is a result of the necessary implementation of stringent monetary policies to combat inflation, the recent decline in financial conditions, the ongoing conflict in Ukraine, and the escalating trends of geo-economic fragmentation. In contrast to the April 2023 World Economic Outlook (WEO) forecast, the expected global growth rate for 2023 has been adjusted upward by 0.2 percentage points. However, there are no alterations foreseen for the year 2024, as the growth outlook for that period remains unchanged.

• Sub-Sahara Africa Outlook

The economic growth trajectory within the Sub-Saharan Africa (SSA) region is expected to follow a pattern of decline, transitioning from a 3.9% growth rate in 2022 to a projected 3.5% in 2023. However, there is a positive outlook for improvement, with growth anticipated to rebound to 4.1% by 2024. The economic growth prospects for Nigeria are poised for a downturn in both 2023 and 2024, primarily triggered by a reduction in oil production by 3.2% and 3.0%, respectively.

Furthermore, inflation reached its highest point in two decades, surging to 18.8%. This increase was primarily propelled by rising energy and food prices, as well as the ripple effects stemming from the depreciation of the exchange rate. The growth trajectory of South Africa is expected to decelerate, dropping from 1.9% in 2022 to a mere 0.3% in 2023, before recovering to 1.7% in 2024. The subdued growth outlook for 2023 is rooted in structural limitations, encompassing heightened power shortages, a less robust global economic environment, and a carry-over effect from the growth downturn experienced at the end of 2022. The growth projection for 2023 has been slightly revised upwards from the earlier estimate of 0.2%, reflecting a modest growth performance observed during the first quarter of 2023.

• Domestic Outlook

According to the Bank of Namibia’s Economic outlook (August 2023), Namibia's GDP growth trajectory is anticipated to experience a deceleration throughout 2023 and 2024, primarily attributed to sluggish global demand and constrained growth within the agricultural sector. The domestic economy is predicted to moderate downwards to 3.3% in 2023 from the 4.6% registered in 2022, which is expected to moderate to 3.0% in 2024. (Figure 2). The envisaged moderation in growth for 2023 primarily stems from subdued demand both internationally and domestically. Prevailing high levels of inflation and elevated interest rates are projected to dampen expenditure. This dampening effect has been further exacerbated by the diminished global demand, which has negatively impacted commodity prices, including key minerals that Namibia relies on for export.

On the domestic front, the diminished consumer demand is likely to manifest predominantly through decreased growth within the wholesale and retail trade sectors. Adding to the factors contributing to the 2023 growth slowdown are the pronounced base effects stemming from the diamond mining sector, wherein production volumes experienced a significant 45.1% increase in 2022.

Primary industries are expected to register moderate growth rates in 2023 and 2024, on the back of robust growth in 2022. Primary industries are projected to grow by 3.2 percent and 3.6 percent in 2023 and 2024, respectively, a slowdown from a robust 12.9 percent in 2022. The mining sector, particularly the diamond mining subsector, is expected to continue supporting growth in 2023. Diamond mining is projected to expand further in 2023, on the back of a strong performance in 2022, but such growth is expected to moderate downwards. However, growth for agriculture, forestry, and fishing is expected to turn negative in 2023, reflecting weak performance from all sub-sectors.

Secondary industries are projected to grow by 3.6 percent and 3.3 percent during 2023 and 2024, respectively. This improvement is expected to come from a recovery in the construction sector, which contracted for the last seven consecutive years.

Tertiary industries are projected to grow by 2.9 percent in 2023 and by 2.6 percent in 2024. The 2023 growth estimate for tertiary industries was revised upwards by 0.9 percentage points, when compared to the estimates published in the March 2023 Economic Outlook update, mainly on account of better performance for sectors such as wholesale and retail trade, and hotels and restaurants. Figure 3

Figure 1: Overview of the World Economic Outlook Projections (Percentage Change)

Source: IMF|July 2023

Figure 2: Overall Real GDP Growth Rates (2022-2025)

Source: BoN

Figure 2: Real GDP Growth Rates by Industries, (2022-2025)

Source: BoN

Global growth remains weak by historical standards. According to the recent World Economic Outlook published today, global growth is expected to slow from 3.5% in 2022 to 3.0% both in 2023 and 2024. The forecast for 2023 is slightly higher than predicted in the World Economic Outlook (WEO) for April 2023. The rise in central bank policy rates in order to combat inflation continues to have an impact on economic activity.

Growth in Sub-Saharan Africa is projected to decline to 3.5% in 2023 before picking up to 4.1% in 2024. Growth in Nigeria in 2023 and 2024 is projected to gradually decline, in line with April projections, reflecting security issues in the oil sector. In South Africa, growth is expected to decline to 0.3% in 2023, with the decline reflecting power shortages, although the forecast has been revised upward by 0.2% since the April 2023 WEO, on account of resilience in services activity in the first quarter. (Figure 1)

Additionally, global headline inflation is expected to fall from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024. In 2023, roughly three-quarters of the world's economies are expected to have lower annual average headline inflation. Monetary policy tightening is expected to gradually dampen inflation, but falling international commodity prices are a key driver of the disinflation forecast for 2023. Differences in the rate of disinflation across countries reflect factors such as different exposures to commodity price and currency movements, as well as varying degrees of economic overheating.

Main forces shaping the Global Outlook:

• The fight against inflation continues. Inflation is easing in most countries but remains high, with divergences across economies and inflation measures
• Acute stress in the banking sector has receded, but credit availability is tight. Thanks to the authorities’ swift reaction, the March 2023 banking scare remained contained and limited to problematic regional banks in the United States and Credit Suisse in Switzerland
• Following a reopening boost, China’s recovery is losing steam. Manufacturing activity and consumption of services in China rebounded at the beginning of the year when Chinese authorities abandoned their strict lockdown policies; net exports contributed strongly to sequential growth in February and March as supply chains normalized and firms swiftly put backlogs of orders into production    

Figure 1: Overview of the World Economic Outlook Projections (percentage change)

Source: IMF|July 2023

1. Background

According to the World Bank Global Economic Prospectus of June 2023, the global economy is set to moderate to 2.1% in 2023 from a growth of 3.1% recorded in 2022, before a slight upturn of 2.4% in 2024. The global economy remains in a precarious state amid the protracted effects of the overlapping negative shocks of the pandemic, the Russian and Ukraine conflict, and the sharp tightening of monetary policy to contain high inflation. Inflation pressures persist, and tight monetary policy is expected to weigh substantially on activity in 2023. Recent banking sector stress in advanced economies will also likely dampen activity through more restrictive credit conditions. More widespread bank turmoil and tighter monetary policy could lead to even weaker global growth.

Growth in Sub-Saharan Africa is projected to slow to 3.2% in 2023, a 0.4% downward revision from January forecasts as external headwinds, persistent inflation, higher borrowing costs, and increased insecurity weigh on activity. Recoveries from the pandemic remain incomplete in many Sub-Saharan African countries, with elevated costs of living tempering the growth of consumption. Over half of the 2023 downgrade is attributable to an abrupt slowdown in South Africa. Growth in South Africa decelerated sharply in early 2023, reflecting policy tightening and the impact of an intensifying energy crisis.

South Africa

Despite concerns over load shedding and the potential impact on inflation and economic growth, the South African economy managed to avoid a technical recession. The South African economy recorded a rebound of 0.4% in economic activity during quarter 1 of 2023. Stats SA report indicated that the manufacturing and finance industries were the main drivers for economic growth during the period under review. The manufacturing sector demonstrated a modest growth rate of 1.5%, followed by the construction and the transport, storage, and communication sector, both experiencing growth rates of 1.1% respectively.

However, certain sectors faced challenges despite the overall economic recovery. Load shedding, in particular, hindered growth, leading to a significant decline of 12.3% in the agriculture, forestry, and fishing sector. Further to this, the excessive rainfall received at the beginning of the season resulted in difficult conditions for field crops, causing disruptions and delays in planting, with some areas experiencing delays of over a month. Additionally, the livestock sector continues to face challenges stemming from foot and mouth disease, leading to a decrease in slaughtering activity. Another significant sector that recorded a decline was the electricity, gas, and water sector. This decline was attributed to Eskom's current inability to generate sufficient electricity to meet demand. (Figures 1 & 3).

Namibia

The Namibian economy recorded a growth of 5.0% in the first quarter of 2023, a slower growth when compared to the 7.3% growth rate that was recorded in the corresponding quarter of 2022. The quarter-on-quarter decline in economic performance was largely attributed to contractions in the financial services which declined by 4.9%. Poor performance in the sector was attributed to both banking services and the insurance services subsectors as a result of the deterioration in the stock of net claims on central government and the decline in the real total deposits and claims. Additionally, the manufacturing sector also recorded the second notable decline of 2.7% during the period under review. The decline in the manufacturing sector activities was a result of the reduction in real value added in subsectors of grain mill, beverages, and dairy products which came as a result of low volume sales of grain mill products as well as the volume produced in the beverages sub-sectors.

Furthermore, the 'agriculture and forestry, health sectors also experienced significant declines of 3.6 %, 2.6% respectively. Low growth in the agriculture and forestry sector was attributed to low growth in the crop farming subsector as a result of the adverse impact of inadequate, delayed, and erratic rainfall in the country. Poor performance in health could be attributed to a deceleration in real compensation for employees.

Additionally, sectors such as mining and quarrying and ‘electricity and water’ posted growths. The sectors contributed 3.7% and 0.5% to GDP during the period under review. Furthermore, activities also picked up in the sectors of administrative and support services, transport and storage, wholesale and retail trade, and hotels and restaurants (Figures 2 & 3).

Undoubtedly, Namibia's economic structure bears a striking resemblance to that of South Africa, particularly in terms of the sectors that make significant contributions to both countries' Gross Domestic Product (GDP). Namibia and South Africa exhibit similarities in their economic structures, particularly in the significance of the mining and quarrying sectors, which contribute substantially to their exports and employment. Both countries possess abundant mineral resources like diamonds, gold, and uranium. Furthermore, agriculture holds importance for both economies, though South Africa has a more prominent agricultural industry due to a larger share of cultivable land. Additionally, Namibia's coastal location enables a strong focus on the fishing sector, contributing significantly to its GDP and export revenue. Namibia has also experienced double-digit growth in the manufacturing sector and hence, diversifying its economy away from the dependence on raw materials from the primary sector. In contrast, South Africa's economy is more diversified, with a well-developed industrial sector and a prominent financial and services industry. Overall, these similarities and differences shape the economic landscapes of Namibia and South Africa (Figures 4&5).

Figure 1: South Africa’s Key Industry growth rates- Q1 2023 compared with Q1 2022

Source: StatsSA & HEI Research

Figure 2: Namibia’s GDP, Quarter 1 2022 Vs. Quarter 1 2023

Source: NSA & HEI Research

Figure 3: South Africa’s Q1 GDP Vs Namibia’s Q1 GDP % change quarter-on-quarter

Source: StatsSA, NSA & HEI Research

Figure 4: South Africa’s historic quarterly GDP for the top 3 sectors at current prices (millions R)

Source: StatsSA & HEI Research

Figure 5: Namibia’s Historic quarterly GDP for the top 3 sectors at current prices (millions N$)

Source: NSA & HEI Research

Outlook

In anticipation of the potential recovery of the South African economy, several factors support this outlook. Firstly, the strengthening of the rand is contributing to positive sentiment, partially attributed to the reduction of power outages during the winter season, which aligns with historical production trends of the state-owned power utility, Eskom. Moreover, measures implemented by the government, such as load curtailment, expanding the diesel rebate to the food value chain, and the introduction of the Agro-Energy Fund; the fund is targeting to assist about 836 farmers with R2.5 billion. These initiatives are expected to facilitate the recovery of the agricultural sector in South Africa. Additionally, the decrease in the frequency of power outages is seen as encouraging news for the overall economy.

However, the South African economy faces risks that could impede growth in the second quarter and throughout 2023. These risks include insufficient and unreliable electricity supply, potential sharp increases in government debt interest rates, remaining on the Financial Action Task Force (FATF) greylist for an extended period, slow and unequal domestic growth, and the potential impact of the tightening of monetary policy to address high inflation. Moreover, the sluggish global economic outlook affecting Namibia's commodity demand and export revenue, uncertainties surrounding the Chinese economy and its effect on the demand for metal commodities, currency volatility leading to higher costs of key imports, concerns about being greylisted by the Financial Action Task Force (FATF), water supply interruptions impacting coastal mines, and below-average rainfall across the country paint are factors that could hinder growth for the Namibian economy in 2023, putting pressure on Namibian consumers and producers.

Executive summary

The domestic economy continued with resilience for the year 2022 from the devastating global economic shocks which included the effects of the Russian conflict with Ukraine and compounded the residual economic effects of the Covid-19 crisis, hindering growth and driving inflation to multi-high levels. Spiraling food and energy prices squeezed households around the world, and the tightening of monetary policy by the central bank to rein in inflation exerted further pressure on Namibian consumers and producers and the entire economy. The domestic economy recorded a growth of 4.6% in 2022 in real terms (GDP growth unadjusted for inflation). While GDP growth adjusted for inflation was 12.1% for 2022. This implies that inflation eroded Gross Domestic Product (GDP) growth by 7.5%.

In monetary terms, Real Gross Domestic Product (RGDP) increased to N$ 144.1 from N$ 137.8 recorded in 2021, while Nominal Gross Domestic Product (NGDP) increased to N$ 206.2 billion from N$ 183.9 billion recorded for 2021. Consumer spending accounted for 78.2%, government spending 23.2%, investment 17.4%, and net exports (18.7%) of total Nominal Gross Domestic Product (NGDP).

Economic activity improved significantly when compared to the growth of 3.5% recorded in 2021 (See figures 1 & 2). The improved performance was mainly driven by the primary and secondary industries which recorded growth rates of 12.9% and 3.3%, respectively. The Tertiary industries also recorded improved performance of 2.2% from a growth of 1.8% recorded in 2021. The main sectors that contributed to the expansion of the economy were manufacturing, electricity, water, and mining and quarrying (See figure 3).

Analysis

• The mining and quarrying sector recorded a strong growth of 21.6% in 2022 when compared to a growth of 11% registered in 2021. The growth in the sector was ascribed to the diamond mining subsector which registered robust growth. During the period under review, the growth recorded for the diamond mining subsector was ascribed to an increase in diamond production driven by the Debmarine diamond production which accounted for 80% in 2022. Debmarine’s diamond production increased by 52% in relation to 2021 primarily due to the new purpose-built vessel, the MV Benguela Gem, inaugurated in March 2022. Additionally, the mining of metal ores observed marginal growth rates recording 0.5%
• The manufacturing sector recorded a growth of 5.0% during the period under review when compared to a contraction of 1.2% registered in 2021. The strong performance resulted from diamond processing, meat processing, and other food products that posted strong growths of 33.7%, 11.6%, and 4.8%
• The electricity and water sector registered a growth of 10.3% in 2022 when compared to a decline of 8.4% registered in 2021. The robust performance in the sector was attributed to the electricity subsector which recorded a growth of 17.5% which emanated from an increase in domestic production
• The administrative and support services sector recorded a positive growth for the first time since 2016. The sector registered a growth of 3.9% during the period under review. The recovery in the sector came as a result of increased demand for administrative and support services such as security services, travel agencies activities, and car rentals due to the recovery of the tourism sector
• The construction industry has been contracting since 2016; in 2022, the sector contracted by 16.4%, compared to a decline of 11.3% in 2021. The poor performance was reflected in the construction works for civil engineering and related services and buildings and related services.
•  The financial and insurance service activities sector rebounded to post a growth of 1.7% during 2022 at the back of a contraction of 5.1% recorded in 2021. The improved performance was primarily driven by the financial service activities subsector which grew by 2.4% due to an increase in interest income (fees, charges, and commission) stemming from increased interest rates coupled with the improved economic activities in the domestic economy.

Figure 1: Namibia annual GDP growth rates (2011 – 2022)

Figure 2: Real GDP growth rates for selected economies (2022)

Figure 3: GDP growth rates per sector (2021 & 2022)

Outlook

The increase in mining activities drove the growth of the primary sector present the country’s most resilient sector from a production and export revenue perspective. Value addition and beneficiation of the mining and other primary commodities remains a critical component to consider. This will help create job opportunities for a vast majority of unemployed youth.

Additionally, the necessary fiscal discipline and the implementation of policy priorities, backed by fiscal transparency have the potential to keep the domestic economy on an upward trajectory. More importantly, the country must strive for inclusive growth.

We project that there will be broader spill-over effects from China’s reopening including more favorable global financial conditions and increased trade with other countries including Namibia. However, a weaker external demand compounded by inflation, currency depreciation, a looming energy crisis, and other domestic headwinds including poor rainfall continues to shape economic developments.