Boston, MA -- (SBWIRE) -- 09/05/2013 -- Although we expect conditions to improve over the remainder of 2013, recent developments have prompted us to make slight downward adjustments to our real GDP growth forecasts for 2013 and 2014 to 4.6% and 5.0% respectively. In particular, the impact of a fragile external environment on the country's all-important diamond sector will continue weigh on headline growth. Looking ahead, our outlook for Botswana's economy remains one of solid, but constrained growth.

We believe that inflationary pressures in Botswana will ease over the coming quarters due to the effects of a slackening in the global economy, lower commodity prices and a subdued domestic demand picture. With price pressures continuing to be largely transient in nature, conditions will remain supportive of the more accommodative stance adopted by the authorities in recent months.

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The next few years will arguably be among the most challenging faced by the ruling Botswana Democratic Party since it came to power in 1966. Despite signs that a shift in the country's political landscape may be under way, we maintain that a comfortable victory for the BDP in the 2014 election remains by far the most likely outcome.

Major Forecast Changes

We have made slight downward adjustments to our real GDP growth forecasts for Botswana in 2013 and 2014 to 4.6% and 5.0% respectively (compared to 4.8% and 5.2% previously). Weaker than expected growth data for the first quarter indicate that demand for diamonds - the pillar of the economy - remains muted in line with sluggish global growth.

A weaker outlook for Botswana's two biggest sources of income - diamond revenues and SACU receipts - has prompted us to adjust downward our projections for the country's fiscal balance in FY2013/14 and FY2014/15 to -0.2% and 0.2% of GDP respectively (from 0.3% and 0.0% previously).

Key Risks To Outlook

A greater than anticipated deterioration in the global economy would likely have a detrimental effect on demand for diamonds, posing significant risks to our real GDP growth forecasts as well as our projections for Botswana's current and fiscal accounts.

We continue to note the risks to our forecasts posed by ongoing revisions to Botswana's national accounts estimates. Amid ongoing efforts by Statistics Botswana to more accurately portray the size and structure of the economy, GDP estimates remain subject to frequent and often notable adjustments.

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