Gross Domestic Recession

Originally published in the Informanté newspaper on Thursday, 19 January, 2017. 

During December, the Namibia Statistics Agency released the third quarter GDP figures for Namibia, and they were, well, if not unexpected, certainly a disappointment. For the second quarter in a row, our country had experienced negative growth. Namibia has entered a technical recession. 

I know! Sounds scary! But what is a technical recession? I’ve previously covered our Gross Domestic Product, and that figures in here. A technical recession is when GDP growth is negative for two quarters or more. That neatly defines it, and yet doesn’t actually tell us what it means – what its effect will be on our lives. To start with, it helps to know that a recession refers to a slowdown of economic activity – quite reasonable, given that GDP is an indicator of economic activity.

It’s effects, however, spread beyond simply that – whereas a simple reduction in economic activity can be countered simply by a better quarter later, a recession has psychological effects that can trap the economy in a negative feedback loop. When companies see a recession approaching, they tend to ‘buckle up’, getting ready for tough times. Excess employees are trimmed, and instead of investing in new ventures, they will start saving money. 

This can result in what is called the paradox of thrift or the paradox of deleveraging. After all, these excess employees trimmed are no longer employed, and their consumption no longer fuels the economy, driving growth lower. The money saved, and not invested, is unproductive – not being put to use, that further slows growth. 

This translates down personally as well. When ordinary citizens start feeling economically pressured, they tend to save more and pay down debts to prepare for hard times ahead. Yet every dollar spent, is one that is active in the economy, paying wages and suppliers. Ironically, by saving, growth is reduced and a recession can linger. 

Let’s have a look, then, at the state of the economy in our recession. Inflation has increased quarter-to-quarter, averaging at 6.9% in the third quarter versus 6.7% in the second quarter, due to increases in the price of food due to the drought. Our net exports have improved, compared to last quarter, but Namibia is still running at a trade deficit of N$ 5.0 billion. In other words, we import N$ 5.0 billion more than we export. Compared to the second quarter figure of N$ 7.3 billion, we are making some progress.

Onto the specific sectors of the economy. Agriculture and Forestry had an increase of 1.6% in the third quarter – after six consecutive quarters of declines. The recovery in the sector is attributed to the livestock farming subsector that registered a growth of 1.1%. In addition, the crop farming subsector recorded an increase of 3.1%. The increase in performance is due to the increase in the number of slaughtered livestock stock at the export abattoirs and butchers. Farmers are re-stocking and investing in their herds! But the fishing sector declined by 4.8%, dropping into the negatives once again. 

Mining and quarrying declined by 5.6 % in the third quarter, mainly due to a decrease in diamond production of about 13%. This was offset somewhat by strong growth in the Uranium subsector, which showed growth of 16.4%. The manufacturing sector also experienced a decline of 5.3% due to declines in diamond cutting and polishing, beverage production and other fabricated metals. In contrast, the electricity and water sector had positive growth, recording 5.3% growth – with the electricity sub-sector showing slower growth.

But the construction sector continues to struggle. After 10 consecutive quarters of 20% plus growth, it had slowed to near zero in the first quarter, and a decline of 19.9% in the second quarter. In the third quarter, it registered a decline of 12.3%, due to a 19.4% decline in government construction. Hotels and Restaurants recorded a return to form with growth of 10.3%, with greater tourist numbers bolstering them. 

Wholesale and retail trade slowed down further, but it still recorded a 3.6% growth, driven by supermarket and clothing sales. The transport and communication sector grew by 1.8%, spearheaded by the port services and airport services, reflecting the greater tourist numbers as well.  Finally, the financial services sector grew by 3.4%, with the banking sub-sector leading the way.

When looked from this angle, it is clear why it is called a ‘technical’ recession – because while certain industries in our economy may struggle, others are on a rebound. The technical recession should be seen as a warning sign, not an indication of economic doom – and we should guard against falling into the paradox of thrift and preventing a recovery. The economy works best when we all pull together – when we Harambee. With the final 2016 GDP figures still to come, let us Harambee at the start of this year to ensure that a technical recession does not turn into a full blown depression.