Domestic economic activity slows down

FamCast News
13 days ago

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By Neo Kolane

The Central Bank of Lesotho (CBL) governor, Maluke Letete, has indicated that domestic economic activity slowed down in the first quarter of 2024 from a stronger expansion in the preceding quarter.

This mainly reflected weak consumer demand, coupled with the slowdown in the manufacturing and production sub-sector, he noted.

Letete added that although the financial sector experienced moderate growth, overall growth was dampened by a contraction in construction activity.

“Lesotho’s growth outlook is expected to maintain a moderate growth path over the medium-term at an average of 2.0 per cent,” he pointed out in a statement issued by the CBL Monetary Policy Committee on June 4.

Domestic headline inflation fell to 7.1 per cent in April from 7.4 per cent in March 2024.

This mainly reflected the winding down of the price effect of taxes on alcohol and tobacco introduced in March 2023 as well as the falling cost of building materials.

Nonetheless, Letete noted, prices of food, energy, restaurants and hotels moderated the fall in the inflation rate. The major drivers of the increased price pressures were adverse weather conditions in Southern Africa which negatively affected food prices, weak exchange rate and strong global demand for oil.

He further indicated that the government operations registered a surplus equivalent to 7.5 per cent of Gross Domestic Product (GDP) in the first quarter of 2024 mainly due to receipt of rand monetary compensation, high water royalties and increased income tax revenue.

“During the same period, the stock of public debt as per cent of GDP declined to 57.4 per cent.

“The external sector position improved in the first quarter of 2024 due to higher water royalties,” he explained.

Consequently, the level of foreign reserves increased from M15.04 billion in the fourth quarter of 2023 to M15.20 billion in the first quarter of 2024.

The Net International Reserve (NIR) outlook is expected to remain robust bolstered by increased Southern African Customs Union receipts and water royalties.

The MPC announced that the global economy is forecast to grow by 3.2 per cent in 2024 and 2025.

The forecast is expected to be driven mainly by a slight pick-up growth in the advanced economies, which is set to be offset by a moderate slowdown in emerging markets and developing economies.

The risks to growth are expected to emanate from new and increased commodity price volatility as geopolitical tensions and weather shocks increase, high interest rates, high public debt levels and China’s enduring property sector downturn.

“Economic activity generally improved most selected advanced and emerging market economies in the first quarter of 2024, although modestly in some, except Japan.

“The improvement was mainly due to increased consumer and government spending as well as strong services sector performance.

“Conversely, growth in Japan was negatively affected by the high inflation rate and adverse weather shock,” the MPA said.

Furthermore, South Africa’s economic performance is expected to have weakened due to an enduring energy crisis and logistical constraints that negatively affected both mining and manufacturing output in the first quarter of 2024.

In summary, the committee said the global growth is expected to pick up in 2024 with risks to the outlook. The domestic economy continued to remain weak while inflationary pressures were abating.

However, expected adverse weather shocks and weak exchange rate are expected to negatively affect the inflation outlook. NIR position is expected to maintain a robust position due to the water royalties’ windfall.

The MPC had therefore decided to decrease the NIR target to US$760 million (M14 million) from US$770 million (M14.4 million)

The NIR target will be sufficient to maintain a one to one exchange rate peg between the Loti and the Rand.

The committee also decided to maintain the CBL at 7.7 percent per annum.

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