The Rand Merchant Bank (RMB) Global Markets Research for Sub-Saharan Africa latest edition on Botswana’s macroeconomics developments and implications has viewed economic growth in Botswana to remain strong, with GDP growing at around 5 percent in 2014,
The January editions has indicated that growth dynamics, however, are changing considerably adding that domestic demand, particularly from consumers, was the main driver in 2013.
“In 2014, we expect consumer demand to decelerate. This slowdown will be driven primarily by the tightening of credit standards, even in an environment where interest rates are falling. Similarly, the boom in commercial construction should slow,” reads the global market research latest edition.
It also indicated that by contrast, diamond demand is expected to start recovering in 2014, as a result of stronger global growth, thereby leading to an expansion in mining production.
Also the expected improvement in mining and the slowdown in expenditure growth should lead to an improvement in the balance of payments.
The medium-term growth prospects remain mostly dependent on the continued recovery in the diamond sector.
“This looks increasingly likely given the improvement in the global economy. Our medium-term growth projection remains at 5 percent. We do not expect the 2014 election to meaningfully affect growth.”
Regarding the inflation the research has indicated that inflation has fallen sharply thanks to the adjustment in the exchange rate mechanism that has stopped the pula depreciating against the basket adding that as of December 2013, inflation was at 4.1 percent, down from the 7 percent+ rates seen a year ago.
“Inflation may drop further in the short term and should average 3.5 percent in 2014. The long term stable rate given a zero currency crawl should be 4 percent. Risks to the inflation outlook come from South Africa where inflation has been contained by weak economic growth thus far, preventing a spill-over into Botswana.
The January edition indicated that it is expected that inflation to average 4 percent over the medium term adding that this is the level that would be consistent with 2 percent inflation in the developed world, 5.5 percent inflation in South Africa, and the current minimal rate of crawl on the pula.
The biggest medium-term threat is said to be that the government, acting through the Bank of Botswana, increases the crawl rate once again.
“In 2013, we worried that the aggressive rate cuts were fueling a consumer credit binge and property bubble. Concerns over the former are receding slightly: recent data suggests the tightening of bank lending standards is slowing the very rapid pace of credit expansions. We do, nevertheless, remain concerned by the property market,” reads the edition.