But BoB survey shows firms are optimistic about recovery next year
Local firms are pessimistic about economic activity and expect banks to be stingy with credit and the cost of living to go even higher in the third and fourth quarter of 2021, the Bank of Botswana (BoB) has revealed in its quarterly business expectations survey.
The recently released report presents results of the survey carried out in the third quarter of 2020 and therefore business expectations about the third period (Q3:2020) itself, the fourth quarter of 2020 (Q4:2020), and the 12-month period (M12) from October 2020 to September 2021 (Q4:2020-Q3:2021).
The survey is on 100 businesses from eight economic sectors, namely agriculture, mining, manufacturing, water and electricity, construction, trade, hotels and restaurants, transport and communications, and finance and business services.
According to the report, the expected weak performance in the third quarter of 2020 is mainly influenced by perceptions of lower output growth in the Trade, Hotels, Restaurants, Transport and Communications, Mining and Quarrying, as well as the Finance and Business Services sectors between the second and third quarters of 2020.
“Notably, the Trade, Hotels, Restaurants, Transport and Communications sector was less pessimistic about economic growth prospects in the third quarter of 2020 compared to the previous quarter,” says the report. “This is consistent with the gradual easing of COVID-19 movement restrictions, which initially led to cancelled bookings and closure of a number of tourism, accommodation and restaurant facilities.”
Firms see a decline in production and investment during the third quarter of 2020, while for the finance and business services sector, the last quarter of this year will not improve either, according to the companies surveyed. The mining and quarrying sector, which predominantly targets the export market, expected a decline in activity in the third quarter of 2020.
The mining sector, which is the mainstay of the economy, is expected to experience unfavourable market conditions as the diamond industry is continues to be experience weaker global demand for rough diamonds associated with the interruption of trading due to COVID-19 pandemic containment measures.
“However, the sector is also less pessimistic compared to the second quarter,” says the report. “The Mining, Trade, Hotels, Restaurants, Transport and Communications and Manufacturing sectors are optimistic about economic performance in the fourth quarter of 2020, while the rest of the sectors are pessimistic.”
Firms also anticipate access to credit to be tight across all markets, domestic and international. Local companies surveyed also expect the cost of credit (lending rates) to decrease across all markets mainly due to the need for affordable credit to stimulate economic activity in the wake of the adverse impact of the COVID-19 pandemic. According to the survey, a few other firms based their expectation of lower lending rates on the April 2020 policy rate cut by the central bank.
Another gloomy prediction by firms is that cost pressures will balloon in the fourth quarter of 2020 due to an expected increase in cost of transport. But inflation will remain stable and within BoB’s medium-term objective range of 3 – 6 percent in 2020 and 2021.
According to Bank of Botswana, firms across all sectors are optimistic about economic recovery in the 12-month period to September 2021, led by the Mining and Quarrying sector. “The perceived less sluggish economic performance in the current survey compared to the previous one is associated with the gradual easing of COVID-19 travel restrictions and resumption of business,” the report explains.
Another positive projection by firms is on borrowing volumes where firms broadly expect an increase in credit across all markets in the 12-month period to September 2021, consistent with the expected decrease in lending rates and improvement in business conditions.