Washington D.C| Nigeria’s economy could drop slightly to 3.2 percent in 2023, and then lower to 3 percent next year even as global outlook sustains high uncertainty amid recent financial sector turmoil, high inflation, ongoing effects of Russia’s invasion of Ukraine, and three years of COVID-19 pandemic.
This is according to the International Monetary Fund’s (IMF) quarterly World Economic Outlook (WEO) update on Tuesday during the ongoing spring meetings of the Fund and the World Bank.
“For Nigeria, our forecast is one of the most stable ones for this year. We have a slight increase, we have 3.3% in 2022 that’s an upward revision, and for 2023 about the same 3.2% and 3per cent in 2024. So this is an economy with very high inflation as well and this is why we have a forecast of about 20 percent for 2023,” Daniel Leigh, IMF Division Chief, Research Department stated during the press briefing announcing the report.
Global growth will now expand 2.8% this year and 3% next year, each 0.1 percentage point less than the Fund’s January. That compares with 3.4% expansion in 2022.
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The Fund is worried that earlier signs in 2023 that the world economy could achieve a soft landing—with inflation coming down and growth steady—have receded amid stubbornly high inflation and recent financial sector turmoil. These situations have added to pressures emanating from tighter monetary policy and Russia’s invasion of Ukraine.
The unexpected failures last month of Silicon Valley Bank and Signature Bank and the collapse of Credit Suisse Group AG have stirred markets and raised fears of financial-stability concerns, complicating central banks’ quest to tame inflation while maintaining growth and the health of the banking system.
Nigerian’s Central Bank Governor, Godwin Emefiele, assured last month that Nigerian banks were sound healthy, having met all the financial system prudential guidelines and therefore not directly exposed to these failed banks’ crisis and, by implication, the wider global banking jitters.
“Although inflation has declined as central banks have raised interest rates and food and energy prices have come down, underlying price pressures are proving sticky, with labor markets tight in a number of economies.
“Side effects from the fast rise in policy rates are becoming apparent, as banking sector vulner- abilities have come into focus and fears of contagion have risen across the broader financial sector, includ- ing nonbank financial institutions,” the Fund stated, noting forceful actions taken by the policy makers to stabilize the banking system.
“In parallel, the other major forces that shaped the world economy in 2022 seem set to continue into this year, but with changed intensities. Debt levels remain high, limiting the ability of fiscal policymakers to respond to new challenges.
“Commodity prices that rose sharply following Russia’s invasion of Ukraine have moderated, but the war continues, and geopoliti- cal tensions are high. Infectious COVID-19 strains caused widespread outbreaks last year, but economies that were hit hard — most notably China —appear to be recovering, easing supply-chain disruptions.
“Despite the fillips from lower food and energy prices and improved supply-chain functioning, risks are firmly to the downside with the increased uncertainty from the recent financial sector turmoil,” the fund further noted.
The Fund also advised Nigeria’s central bank to keep an eye on inflation and therefore urged it to sustain its current tight monetary stance.
“And one of our main recommendations is to tighten the monetary policy to ensure that this inflation comes down towards the more target levels,” Leigh noted in response to a county-specific question.
On the Sub-Saharan Africa, the Chief Economist and Director Research Department IMF, Pierre-Olivier Gourinchas noted that inflation for the region remains high but could gradually decline.
“This region is suffering from a strong funding squeeze we already discussed that some of the countries that are facing very innovative spreads, and a lot of them are already in the region.
A lot of the challenges come from external factors that vary from the surge in energy prices and food prices as a consequence of the Russian invasion of Ukraine and the tension in energy markets is affecting the region,” he stated.
Growth in the region is expected to slow to 3.6 percent in 2023 and then pick up to 4.2 percent following year.
“We also have a situation where inflation is elevated, it’s double-digit inflation and is expected to come down from 16 per cent, to about 12.3 per cent, but still double-digit inflation. And of course, the very important challenge for the region is as a result of these elevated food prices, we have a large number of people who are in situations of food insecurity and we estimate about something like 430 million people in a situation with food insecurity.”
At a separate press meeting to launch the Global Financial Stability Report, the Director, Monetary and Capital Markets Department IMF, Tobias Adrian also emphasized the need to contain inflationary pressures.
“Fighting inflation is the very first order, but you do have to make sure that you know, the most vulnerable population is also taken care of. So, you may have to tighten fiscal policy as well but also provide support, to make sure that everybody can afford nutrition and at a shelter.”
On concerns on the possible spillovers from SVB on the emerging markets, Adrian explained: “Emerging markets were some of the earliest countries that increased monetary policy interest rates in order to fight inflation. When the SVB turmoil hit, there was a sell-off of bank shares in the US in the euro area, but much less in emerging markets.
“And while there’s certainly a broad heterogeneity, in terms of the banking systems in emerging markets, in general, there’s a somewhat smaller share of ratio to securities portfolios that are losing value when interests are being raised and there’s a larger share of retail, so stickier deposits are relative to the kind of wholesale deposits that we have seen in SVB.”
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