Pressure on households seen persisting
Brian Benza | Thursday April 13, 2017 13:34
Last week, Statistics Botswana released the 2016 full-year economic growth figures, which showed a significant improvement in real gross domestic product (GDP) to 4.3% from a negative growth rate of 1.7% in 2015. However, the statistics show that consumption expenditure remained contained in the year largely due to static disposal incomes for households.
First National Bank Botswana (FNBB) market strategist, Moatlhodi Sebabole said national economic growth still has limited multiplier effect as consumption expenditure growth remained low at 1.7% in 2016, compared to 3.6% and 3.5% in 2014 and 2015 respectively.
“This is due to the fact that households’ real income levels remain compressed due to rising unemployment and minimal wage increases. This can be attributed to the closure of mines and other outlets, while wages have not necessarily grown, thus pressuring households further.
“Although the economy is forecast to grow at about four percent, we will remain cautiously optimistic as the subdued private sector employment prospects, freeze in government head count and high levels of indebtedness will continue to constrain growth in household consumption - therefore reducing the ability of economic growth to create enough sustainable jobs and the new sub-sectors,” said Sebabole. Households’ pressure is also reflected in banks’ credit uptake figures where despite an accommodative monetary policy stance in 2016, annual growth in commercial bank credit decreased from 7.1% in December 2015 to 6.2% in December 2016.
According to the central bank, the slowdown in annual credit expansion was mostly associated with the decrease in growth in lending to households from 12.8% in December 2015 to 7.6% in December 2016, largely reflecting the effect of restrained growth in personal incomes.
“The lower rate of increase in lending to households was mostly due to a slowdown in the yearly rate of expansion in unsecured loans to this sector from 15.5% to 8.3% in the same period. On the other hand, the annual growth in mortgage lending to households also slowed from 7.2% to 6.3% in the same period,” said the central bank. The apex bank projects that growth in personal incomes will continue to be restrained, contributing to modest overall domestic demand, with a dampening effect on inflation in the medium term.
Looking at economic growth prospect, Sebabole said he expects growth to remain positive in the forecast period to 2020 at an average of around four percent, with this growth mostly supported by a recovery in commodity prices, increased production and sales of diamonds; resilience in the services sector and stability in the supply of water and electricity.
The robust improvement in growth for 2016 was supported by a recovery in diamond sales owing to a positive recovery in global markets as exports increased by 14%, compared to a decrease of 17.1% in the same time last year.
The non-mining private sector also maintained healthy growth with the increase mostly attributable to the services sectors.