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Covid-19 effects on economy long-term

Covid-19 effects on economy long-term

Business Reporter

FNB economic analyst, Ruusa Nandago, has stated that while lockdown measures across the world have been significantly eased, much uncertainty remains about the future path of the pandemic and the resurgence of its spread.

Given that the Namibian economy entered the Covid-19 period in an already weak position, it will take some time for economies to make up lost ground.


Giving commentary on the impact of Covid-19 on the economy, Nandago stated that even after the pandemic has been contained, the private sector may react by increasing savings and trying to rebuild lost wealth, resulting in a slow recovery of consumption and investment and by implication, economic growth.

She further stated that the Namibian economy contracted by 11.1% y/y in the second quarter as a result of the pandemic induced lockdown measures – the largest contraction on record.

 

Covid-19 effects economy long-term Ruusa Nandago lockdown measures
LACKLUSTER GROWTH EXPECTED: FNB Economic Analyst, Ruusa Nandago. Photo: FNB

 

“There was 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 where revenue was falling,” Nandago summarised.

She added that as a result of job losses, wage cuts and uncertainty around future income, spending in the economy has taken a hit.

Inflation reached a 15-year low of 1.6% in April where much of the strictest level of 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 the 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.

She added that the Bank of Namibia has cut the repo rate by a total of 275bps to 3.75% this year as part of its commitment to support the economy.

Nandago stated that these rates are the lowest they have been since 2001, however, despite these low rates, 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%.


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