KPMG predicts Nigeria’s GDP to continue to grow at a relatively slow pace of 3 percent in 2023 due to the slowdown in economic activity that typically characterizes periods of political transition in Nigeria.
The report titled ‘Global Economic Outlook – H1 2023’ stated that a new government is set to take over from the current administration in May 2023 and it will face a deeply rooted challenging environment, characterized by fragile and slow economic growth and challenges in the foreign exchange market.
“The spillover from an expected slowdown in the global economy in 2023 and its trade and financial flows implications are expected to drag on GDP,” KPMG said in the report.
“Additionally, growth will be negatively affected by the naira Redesign Policy introduced in Q4 2022 andQ1 2023 and its implications on key non-oil sectors like manufacturing, trade, accommodation and food services, transportation and other services, further slowing down overall GDP growth in 2023.”
It further revealed that additionally, government revenue remains inadequate to support much needed expenditure, leading to a high debt stock and high debt service payments.
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“The Nigerian economy ended the past year with a GDP growth rate of 3.52 percent in Q4 2022 compared with 2.25 percent in Q3 2022, with growth averaging 3.10 percent over 2022. This represents eight consecutive quarters of growth, following its exit from the pandemic-induced recession in Q3 2020.
“Growth in 2022 was driven by the non-oil sector, as continuous recovery in household consumption boosted spending, particularly in the finance and insurance services, telecommunications, and transportation and storage services.
“While the non-oil sector grew by 4.84 percent, the oil sector contracted by 19.22 percent, largely attributed to worsening oil theft, pipeline vandalization, underinvestment, and other operational challenges inhibiting oil production.
“Nevertheless, we expect telecommunications, trade services, as well as an expected recovery in the oil sector, on account of measures being taken to tackle security issues, to drive our forecast of 3 percent growth in 2023,” KPMG said.
“Headline annual inflation maintained its upward trend throughout 2022, reaching its highest levels in almost two decades and closing the year at 21.34 percent, with food inflation and core inflation growing by 23.75 percent and 18.49 percent respectively.”
KPMG noted that despite aggressive rate hikes to curtail inflation, it has remained stubbornly high and is predicted to remain above 20 percent in 2023 due to the persistence of the structural and policy issues.
“Unemployment is expected to continue to be a major challenge in 2023 due to the limited investment by the private sector, low industrialization and slower than required economic growth and consequently the inability of the economy to absorb the 4-5 million new entrants into the Nigerian job market every year.
KPMG said although lagged, the National Bureau of Statistics recorded an increase in the national unemployment rate from 23.1 percent in 2018 to 33.3 percent in 2020. “We estimate that this rate has increased to 37.7 percent in 2022 and will rise further to 40.6 percent in 2023.”
