After making good gains in the first half of the year, Botswana economy is facing uncertainties following turbulences in the global economy in the third quarter of the year, which has made it difficult to predict the direction of the local economy.
A Bifm Economic Review for the 3rd Quarter of 2011 released this week has noted it will be difficult to foresee the direction the local economy will take as developments in the international economy are difficult to call.
Dr. Keith Jefferis, Chairman of Bifm Investment Committee, wrote in the review that the outlook for the global economy has deteriorated sharply in recent weeks.
“Global growth projections have been revised downwards, with the major developed economies as a whole projected to barely keep out of recession, even in what might now be termed a “best case” scenario,” Jefferis said.
This scenario presents challenges for Botswana economy which largely depends on exports with key markets in Europe and United States in economic difficulties.
In the USA, growth has remained sluggish and unemployment high despite very loose monetary conditions suggesting that conventional policy tools are proving ineffective.
Although the renewed hope for economic recovery in the US continues to prove elusive, the situation in Europe is even more risky and uncertain.
The Eurozone governments are grappling with a range of problems centered on Greece’s fiscal crisis and unsustainable debt, but with deeper roots in the structure and governance of the single currency.
“As an export dependent economy, Botswana is of course vulnerable to disruptions in the global economy,” said the former Bank of Botswana Deputy Governor.
“If the outcome is a modest slowdown in global growth, then the main impact would be on export prices, and hence on the balance of payments and the government budget, which would both be adversely affected by lower earnings.”
The impact is already visible with copper and nickel prices falling by more than 25 percent between July and September.
Diamond prices, which rose sharply in the first half of the year, are also under pressure as the market has softened.
Bifm, however, said there is unlikely to be any short-term impact on GDP and economic growth, as production and output levels would most likely remain unchanged, even at lower prices.
“Nevertheless, a prolonged period of lower global growth, or a sharper collapse of global output as in 2007-9, would inevitably feed through to lower growth in Botswana, as well as renewed fiscal problems,” he said.
According to Bifm, Botswana’s growth figures for the period prior to the recent deterioration in global economic conditions ÔÇô i.e. for April-June 2011, that have been recently been released by Statistics Botswana are on balance quite positive, and show continued recovery from the earlier economic slowdown.
Headline numbers are that over the year to June 2011, the economy grew by 7.0 percent, up from 4.9 percent in the previous quarter.
The upturn in growth was mainly driven by the mining sector, where annual growth rose from 0.6 percent in the year to March 2011 to 6.2 percent in the year to June.
The good performance was shared by the non mining private sector, with growth of 7.9 percent, similar to the 7.8 percent recorded in March.
The sectoral pattern of growth has changed somewhat compared to the previous quarter. As noted, the performance of the mining sector ÔÇôdriven by diamonds – improved considerably.
Construction remained the best-performing sector, growing by 25 percent over the year to June, driven by major investments in power generation (Morupule B) and mining (Jwaneng Cut 8 (diamonds) and Boseto (copper)).