Economic recession looms
Brian Benza | Friday January 8, 2016 12:42
Technically, an economy falls into a recession after two consecutive quarters of negative growth.
Latest data recently released by Statistics Botswana (SB) shows that real GDP (year on year) decreased by 3.5 percent in the third quarter of 2015 compared to an increase of 4.0 percent accrued in the same quarter in 2014.
The third quarter decline in GDP growth rate was attributed to a decline in diamond production by 33.4 percent.
In the period, total copper production also decreased by 75.6 percent compared to a decrease of 17.3 percent in the same quarter last year. Due to anemic demand, diamond production is expected to have taken another significant drop in the last quarter of 2015; a development that would likely drag GDP figures into another quarterly negative growth and consequently the economy into a recession.
From a 2015 output target of 20 million carats, Debswana had produced a cumulative 15.62 million carats by the end of the third quarter.
This leaves an expected fourth quarter output of 4.38 million carats, which would be about 26 percent lower than the same period in 2014.
The last time the economy fell into recession was in 2009 following the global economic crisis, which saw Debswana temporarily shutting its mines due to weak demand for diamonds.
While year-on-year figures show that the economy has not gone over the cliff yet, on a quarter-on-quarter (qoq) basis Botswana is now technically in a recession.
Quarter on quarter data compares two consecutive three-month period while year-on-year contrasts the same quarter of successive years.
According to the quarter-on-quarter data, the economy shrank 3.7 percent in July-September 2015 following another revised second-quarter negative growth of 0.1 percent, marking a technical recession.
However economists often shun quarter-on-quarter data, as such numbers do not take into account seasonal changes and therefore might not portray a true picture of the state of the economy.
In Botswana’s case, GDP tends to be very volatile from one quarter to the next partly because movements in economic activity are dominated by changes in mining output, which is highly variable on a quarterly basis.
Other sectors, on the other hand, also show volatile growth on a quarter-to-quarter basis. “Because of this volatility, and the fact that seasonally-adjusted GDP data are not provided for Botswana, the quarter-on-quarter measures of GDP growth that are conventionally reported are not very useful,” said Economist Keith Jefferis in a blog.
Highlighting the strength of the headwinds that have hit the economy, government aims to jump start economic activity through an Economic Stimulus Package (ESP), whose details are expected to be announced in February when the 2016/17 national budget is unveiled.
At industry level, according to the figures released by SB, most of the decline in the third quarter of 2015 was attributed to mining, water & electricity and agriculture sectors, which decreased by 40.6, 114.9 and 0.7 percent respectively.
All other industries recorded a positive growth of at least 2.2 percent over the period.
There was a significant decrease in the value added by the water and electricity sector of 114.9 percent realised in the third quarter of the year under review.
The decline is largely by the electricity sector, which has been contributing negatively to the economy since the first quarter of 2012 due to a substantial increase in intermediate consumption. Local production of electricity decreased by 27.5 percent while imports increased by 61.2 percent.