Despite a boost in global economic activities recorded in 2022, overall growth in international economic activities for 2023 is likely to remain subdued.
The recessionary global economic outlook for 2023 will be diverse across regional economies and industries. Growth is expected in specific regions and sectors; however, it will not be sufficient to offset the global recessionary pressures most countries face.
A growth recession involves slow economic growth and a rising unemployment rate without experiencing a full economic contraction. As per this definition, the International Monetary Fund’s (IMF) World Economic Outlook (WEO) report for October 2022 forecasted the global economy to grow by 3.2% and 2.7% during 2022 and 2023 respectively, representing a slowdown from 6.0% recorded in 2021.
A tight monetary stance, against the backdrop of persistent global inflationary pressures; exacerbated by the ongoing Russia-Ukraine war, are likely to remain in force for the remainder of the following three quarters of 2023.
Growth forecasts in advanced economies were revised downwards by 0.3 percentage points for 2023. The downgrades on growth expectations for advanced economies mainly stemmed from the slow growth projected for the United States and European economies. The United States recession predictor, the inverted yield curve, has not relented and continues to reflect expectations of a recession for the next nine months in 2023. These recessionary conditions continue to carry the risk of rising socioeconomic unrest.
However, Sub-Saharan Africa’s economy is expected to grow flat, slightly increasing to 3.7% in 2023 from 3.6% in 2022. The sluggish economic growth prospects in Sub-Saharan Africa are owed predominantly to low growths in key trading partners, downside shifts in commodity terms of trade and, of course, the tightening monetary conditions.
The Bank of Namibia stated that the domestic economy is forecasted to follow the same growth recession trend, owing to tight monetary policy, persistent inflationary pressures and high costs of essential import items.
Monetary policy stance
As the Russia-Ukraine conflict continues into 2023, the international central bank’s war on inflation persisted, though at a moderate level, as authorities scaled back on interest rate hikes. According to Reuters, the Federal Reserve, the central bank of the United States, raised its policy rate by a quarter percentage point in February 2023 after maintaining 75 basis points between June 2022 and November 2022.
Monetary Policy Committees of the South African Reserve Bank and the Bank of Namibia increased their policy rates in all six meetings in 2022. According to the Bank of Namibia, the decision to increase repo rates in all six meetings was mainly consistent with other central banks worldwide. It aimed to guard against the risk of global and domestic inflation, which remained high throughout 2022. The IMF projects that global inflation will stay elevated in 2023, and as a result, central banks across the globe will react by tightening other policy stances, however, at modest levels.
High costs of essential imported items
According to S&P Global Market Intelligence’s global trade forecasts published in January 2023, international trade activities were forecasted to fall by 1.9% year-on-year in the first quarter of 2023 and by 1.4% in the second quarter of 2023 before rebounding later in the year to reach an overall growth of 0.6% in 2023. The forecasted weak growth in global trade for 2023 is in line with softening global economic growth during the period under review.
According to the Bank of Namibia, Namibia’s imports of goods rose to a record high during the third quarter of 2022. Key import categories such as mineral fuels, consumer goods, machinery and electrical appliances significantly increased import payments.
The increased import payments for mineral fuels were ascribed to the higher fuel cost due to ongoing higher international fuel prices linked to the continuing Russia-Ukraine war. Against the high cost of essential imported items in the domestic economy, payments to the rest of the world are expected to slow down. This is likely to reduce Namibia’s trade deficit for 2023 significantly.
The global and domestic economic outlook for 2023 is characterised by slow economic growth and high inflation rates. Though the global unemployment rate is expected to rise, it will not be sufficient to offset increases in global prices. The tightening of the monetary stance will be the most effective tool to tame inflation but at the expense of sustained economic growth.
*Anton Mushongo is Bank Windhoek’s Market Research Analyst.
