Economy suffers deepest contraction on record
The Namibian economy recorded the largest contraction on record during 2020, as the economy contracted by 11.1% year-on-year as a result of the Covid-19 pandemic, FirstRand Namibia economist Ruusa Nandago has said.
Nandago, in a media statement on Wednesday, said there was a major disruption to economic activity as all but three sectors declined during this period, with the hotels and restaurants sector the hardest hit.
“The slowdown in the economy is also reflected in the labour market, where widespread job losses were reported during the same period as the pandemic dealt a blow to businesses.
The second quarter saw 5 748 retrenchments being recorded as companies either closed or engaged in right-sizing to cut costs at a time when revenue was falling,” the economist stated.
As a result of job losses, wage cuts and uncertainty around future income, spending in the economy has taken a hit. In addition, inflation reached a 15-year low of 1.6% in April 2020, when the strictest level of the Covid-19 lockdown was implemented.
While inflation has since increased to 2.4% in August, it remains far below its historical trend.
The reason for this is that the demand for goods and services by consumers is weak, making it difficult for retailers to pass on price increases to consumers.
This stress at consumer level is reflected in vehicle sales, house prices and wholesale-retail trade which have contracted by 26.6%, 2.7% and 22.5% respectively.
Nandago said the Bank of Namibia has cut the repo rate by a total of 275 basis points to 3.75% this year as part of its commitment to supporting the economy.
“These rates are the lowest they have been since 2001. Despite these low rates, however, credit extended to the private sector remains low, suggesting that low rates have done little to spur economic activity.
The latest private sector credit extension figures show that total credit extended grew by only 2.6% as corporate credit uptake growth remains low at 0.4%, while that of households was recorded at 4.3%,” said Nandago. - Nampa