Category Archives: Economic Research

Economic Research

PSCE January 2015

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PSCE 01 2015

Overall

Credit extended to the private sector increased by N$495.8m, or 0.71%, in January 2015, taking total credit outstanding to N$69.9bn. On an annual basis PSCE growth decelerated slightly to 16.1%, from the 16.5% in December. A net total of N$9.71bn worth of credit has been extended over the last 12 months, as high growth continues to be seen off an ever increasing base. Of this N$9.71bn, approximately N$5.21bn was issued to businesses, while N$4.42bn was taken up by individuals.

Credit extension to households

Credit extension to households contracted by 0.32% on a monthly basis, but expanded 11.97% on an annual basis in January. This is the first monthly contraction since January 2012, and only the ninth monthly contraction in the last nine years. The actual size of the contraction was small relative to the expansions seen in the previous few periods, and is insignificant in terms of total outstanding household credit. Bank of Namibia cited elevated levels of private sector credit extension as one of their reasons for hiking interest rates in February, but it is questionable whether the 25 basis point increase will have much effect on credit extension. The current period contraction is due to seasonal effects witnessed in January and February. It is also worth noting that the transmission mechanism between rate hikes and PSCE contractions is relatively slow, particularly when interest rate increases are small.

Household mortgage loans contracted by 0.79% month on month and as such was the driver behind the contraction in household credit extension. The contraction was widely spread over the category however, with only subcategory expanding during the month being overdrafts. Mortgage loans continue contribute over 65% of the total value of household credit although this fraction is slowly declining as instalment credit grows more rapidly.

Installment credit continues to makes up the second largest component of credit extended to households (16.5%) but is the fastest growing component with a 12 month average year on year growth rate of over 18%. This points to a nation that is becoming more comfortable with the use of debt for private consumption. Installment credit is often used to purchase consumer goods and could be seen as a non-productive utilization of credit. Much of this is spent on imported goods which puts pressure on the country’s reserve position when too large.

Credit extension to corporates

Credit extension to corporates grew by 22.67% year-on-year in January, meaningfully higher than the growth of credit extended to households once again. Mortgage loans, the largest component of credit extended to corporations, grew by 0.77% m/m and 23.6% y/y, once again illustrating the seasonal effect of credit extension on mortgages and other credit. On a month on month basis loans and other advances as well as overdraft credit continues to drive credit extended to corporates, while instalment credit experienced a contraction. The seasonal effects seen in credit extended to households is mitigated by high growth in loans and other advances attributable to corporates during the month in review.

Reserves and money supply

Foreign reserves increased by 21.7% m/m in January, from N$13.5bn to N$16.5bn, but declined 11.5% y/y. The usual SACU payment in January has elevated the reserve position to more sustainable levels, although still lower than last year January. The M2 money supply saw a slight decrease of 0.23% from December as transferable deposits held with BoN fell by 4.2%.

Outlook

Due to strong wealth effects as a result of prolonged and abnormally high growth, we believe that demand for credit will remain high, while real income growth will allow suppliers of debt to continue to lend with a fair level of confidence. Additionally, the lagged effects of increasing interest rates mean that it is unlikely that we will see a major impact on credit demand by households for a period of 6 to 18 months after rate hikes start, provided that the magnitude of the hiking cycle is sufficient to cause an impact.

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New Vehicle Sales – January 2015

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Vehicle sales jan

1,716 new vehicles were sold during January, a drop of 6.3% from the December sales of 1,831, but an increase of 13.9% over January 2014. Passenger vehicle sales came in at 743, slightly below the average for 2014 of 803, nevertheless increasing modestly year on year. Commercial vehicle sales saw similar results, declining 3.5% month on month but increasing 20.3% year on year. Rolling 12 month sales once again reached record levels this month, with the year on year 12 month percentage change above 30% for the 11th consecutive month.

veh1

 

Toyota and Volkswagen continue to dominate the passenger vehicle segment with Toyota selling 274 (37%) vehicles and Volkswagen selling 146 (20%) of the 743 passenger vehicles sold. Toyota was also the market leader in light commercial vehicle sales, having the lion’s share at 52% of the market, followed by Nissan at 15% and Ford in third place with 11%. Commercial vehicle sales continue to come in higher than passenger vehicle sales as has been the long term trend.

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The Bottom Line

The strong vehicle sales is attributed to a number of factors, namely the on-going expansive fiscal and monetary positions of the Ministry of Finance and Bank of Namibia, as well as purchase of vehicles by Government. The Ministry of Finance has allocated N$984.5m to vehicle purchases in the 2014/15 National Budget, a N$517.8m (111.0%) increase on the vehicle expenditure budget of the 2013/14 financial year. Government tenders yet to be delivered should maintain the momentum of vehicle sales through 2015. Strong economic growth and ever increasing private sector credit extension should bolster this trend in growth.

Namibia CPI – January 2015

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NCPI Jan 2015

 

Namibian annual inflation fell to 4.5 percent in January, from 4.6 percent the preceding month. On a monthly basis, weighted prices rose by 0.8 percent. The consumption categories experiencing the largest price increases over the past 12 months were alcoholic beverages and tobacco (7.5%), miscellaneous goods and services (6.6%), and food (6.5%). The drop in inflation over the period is attributed to the decline in food inflation and the drop in transport inflation, driven by lower fuel prices.

Food and non-alcoholic beverages have seen a steady decline in year on year inflation over the last seven months (down from 10.1% to 6.5%), which contrasts with alcoholic beverages and tobacco which have experienced increased year on year inflation since June last year (up to 7.5% from 6.1%). Housing, water, electricity, gas and other fuels, the largest weighting in the CPI basket, remained roughly in line with December’s year on year inflation of 3.6 percent.

NCPI 2015 Jan

 

Transport inflation continued to decline in January, to 1.5 percent, from 2.9 percent in December. The continued fall in this basket category was expected given the oil price decline. Transport inflation reached 10.7% in June last year as the oil price peaked. Since then the price of oil has fallen over 50% driving a decline of 21% in the price of fuel within Namibia thus far. We expect the fuel price to decline further over the coming months as the oil price stays depressed and this should lead to deflation in the Transport category of the NCPI basket within the next couple of months.

The steady fall in food and other beverage inflation is likely to continue for the greater part of the year as lower fuel prices impact production input costs. The lag between the drop in fuel prices and food inflation slowing tends to be between seven and eleven months and as such should start kicking in before the second half of the year. We are unlikely to see deflation in this basket category as fuel is only one of the many inputs into food and beverage production.

Of the four biggest categories of the NCPI basket only food and non-alcoholic beverages and alcoholic beverages and tobacco currently have inflation levels above the basket average. Considering that we expect food and non-alcoholic beverages inflation to slow, due to the lagged transmission mechanism between low fuel prices and food inflation slowing, and the other determining categories to stay depressed, we expect a further decline in inflation going forward for at least the first half of the year. It should be stressed that the decline in inflation is due to supply side factors and therefore should not be seen as a drop in demand from the Namibian consumer. Supply side inflation respite should benefit the consumer and support GDP growth.