Economic Review

Out of the frying pan into the fire aptly describes a world lurching from a deflationary shock to an inflationary shock. The former an unmatched standstill of economic activity and the latter an unmatched turmoil in pricing activity, exacerbated by war in Europe.


Our strategy is designed to generate a durable advantage and higher value in a competitive market. It guides the Group to focus on its strategic priorities, identify opportunities and effectively mitigate  strategic risks.

Our operating context:

The surge in energy costs acts like a global and domestic tax on consumers and dramatically cuts global growth expectations. Transport, food and housing costs easily amount to two-thirds of households' expenses. Add the rising inflation and interest rates, and one is left with a toxic mix affecting consumers' ability to take up credit.

The relentlessly high cost of oil fuelled a surge in the transport heavy consumer baskets of the USA to 8.5% and Botswana to 14.3%. In SA and Namibia inflation reached 7.8% and 6.8%, respectively, and is set to rise further as long as transport inflation hovers close to 20%.

Following a sharp bounce back in economic activity after the COVID-19 crisis, which provided an interlude between crises, the global growth outlook for the next two years is deteriorating fast. The International Monetary Fund (“IMF"), Organisation for Economic Co-operation and Development (“OECD") and the World Bank have consistently lowered their outlooks from around the 6% mark to 3% or below.

In South Africa, real economic growth will hardly reach 2%, hamstrung, among others, by load shedding and low confidence. The Namibian economy is likely facing a window of normalisation, having lagged other economies in the bounce back phase. It grew by a better-than expected 2.4% in 2021 and should register 3% or more for a couple of years, while Botswana should settle back to its normal growth range of 4% to 5%. The risk is that our domestic economies might not escape the effects of a global downswing for long.

In large measure, the anticipated global slowdown can also be ascribed to fiscal and monetary policy actions. Central banks were forced into tightening policy by raising interest rates and stepping back from buying assets in the interest rate markets. For credibility's sake, they could simply not afford to be perceived to be behind the curve. However, higher interest rates are unlikely to significantly slow the type of inflation we are seeing.

Nevertheless, the Federal Reserve is determined to stamp down inflation. We fear these interest rate hikes will tip the United States economy into recession, a view supported by the inversion of the yield curve. Like most other central banks, the South African Reserve Bank, the Bank of Namibia and the Bank of Botswana will continue to raise rates. This should provide some relief to the domestic banks' interest margins. However, if higher rates choke off recovery, this could worsen bad debts.

Stretched budget trajectories leave little room to manoeuvre on the fiscal policy front for most economies. Therefore, without meaning to, reductions in deficit spending will be a drag on growth. Rising short rates and inflation have significantly increased the cost of funding, resulting in a painful bear market in fixed income and share markets.

The most recent twelve-month period was the worst one to be invested in the United States ten-year treasury market for the past 33 years. Market-related long bonds in South Africa and Namibia did comparatively better. However, yields also rose sharply, reaching levels normally seen during severe crises.

At the outset of 2022, Namibia was in the throes of a severe COVID-19 wave, with many lives lost. Since then, there have been flare-ups and variants in many geographies. Like a veldfire which had not been completely extinguished, smouldering pockets threaten renewed outbreaks, such as in China. A slowing China will have a cooling effect on commodity markets, an early harbinger of which is the copper price that has already dropped precipitously.​

Floris Bergh

Chief economist
Capricorn Asset Management