Tuesday, May 11, 2021

FNBB says fragile economic growth creates uncertain outlook

The acting Chief Executive Officer (CEO) of first National Bank Botswana (FNBB), Richard Wright says even though there have been major strides in global economic recovery, such recovery has tended to be fragile and inconsistent in 2014, which undoubtedly created an uncertain outlook into the future.

Speaking at FNBB’s 12th 2015/16 national budget review in Gaborone, Wright noted that the global economy is expected to grow by 3.5 percent in 2015. With regards to Botswana, Wright said the economy has been faced with a number of challenges related to power and water supply shortages.

“Among other priorities, employment creation is high on the agenda of government. The minister mentioned a wide range of policies and programs which have been established to address the issue of unemployment with particular emphases on women and the youth,” said Wright.

He added that based on preliminary data, it was encouraging to note that the Botswana economy experienced real GDP of 5.2 percent in 2014, underpinned by growth of 7.4 percent and 5.4 percent in mining and non-mining sectors respectively.

While he appreciated efforts by the Bank of Botswana’s Monetary Policy Committee to maintain he bank rate at a 20 year low of 7.5 percent since December 2013, Wright observed that year on year credit growth has declined from 18.2 percent in September 2013 to 14.5 percent in September 2014. On the other hand, he said, business has increased substantially from 6.4 percent to 20.9 percent, which indicates that business is investing for the future.

“Inflation has remained within the medium term objective of 3-6 percent since June 2013. Our house view is that inflation will average 4.5 percent for 2014 and decline to 4 percent in 2015. The decline in oil could further add imputes to the decline,” said Wright.

For his part, South African based FNB Chief Economist; Sizwe Nxedlana observed that China’s private debt to GDP ratio increased from 117 percent at end of 2008 to 192 percent in 2014. He explained that the ratio comfortably exceeds the pre-crisis peaks in the US and the EU. However, Nxedlana said attempts to rein in credit growth will slow growth.

“Related to this are attempts to convert the drivers of Chinese growth from investments and exports to consumption and services,” said Nxedlana.

He further spoke of the key global macroeconomic trends and their implications for Sub-Saharan Africa such as the Chinese slowdown, impact on commodity prices, implications for Sub-Saharan Africa and Botswana fiscal policy in a global context. Regarding implications for Sub-Saharan Africa, the FNB Chief Economist said a lot of Sub-Saharan African countries are commodity exporters. He added that several large SSA economies enter this commodity price downturn with large twin deficits. Nxedlana highlighted that oil exporters will be particularly hard hit while oil importers which are relatively well diversified will benefit.

Nxedlana said the fact that Chinese private debt to GDP rose by 70 percent between 2008 and 2014 adds credence to the expectation that India will outgrow China for the first time since the Chinese Cultural Revolution.

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