To address the problem of rising prices, the Nigerian government will need to address key structural issues of infrastructure deficit, insecurity, transport costs and exchange rate depreciation, FSDH Research says.
Nigeria’s inflation rate has maintained a downward trend since March 2021, and it is expected to continue this trend going into 2022.
This will be supported by improved economic growth and exchange rate stability in the first half of next year. Inflation rate would remain elevated in 2022, above the CBN’s upper band of 9 percent.
In its moderate case scenario, FSDH expects the inflation rate to average 14.7 percent in 2022. The research arm of the FSDH Merchant Bank Limited states this in its latest macroeconomic update for the fourth quarter of 2021 titled, ‘COVID-19 Recovery: Not Yet Out of the Woods,’ on Wednesday.
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For investment and trade, the report notes that the state of doing business, foreign exchange policies as well as implementing structural reforms will influence key outcomes in 2022.
It says implementing reforms to improve competitiveness, fixing the insecurity challenges and making foreign exchange available to businesses will boost output, enhance investment into key sectors and improve trade.
“Unless these reforms are implemented, investment inflows will remain subdued in 2022, while trade will continue to be in deficit, with a much wider gap between the value of imports and exports,” the report states.
Nigeria’s trade situation remains unfavourable, recording a deficit for eight consecutive quarters. Trade deficit widened to N3 trillion in the third quarter of 2021, despite the recovery in the economy and sustained increase in oil prices.
The Nigerian economy recovered from the COVID-19-induced recession with a positive growth of 0.5 percent, 5 percent and 4 percent in the first, second and third quarters of 2021, respectively.
This implies that growth in full-year 2021 will be higher than the pre-COVID-19 era (2019: 2.3%), suggesting a strong recovery in the year.
“In 2022, we anticipate that GDP growth will be marginally lower than that of 2021 following the high level of uncertainty as the general election approaches, coupled with insecurity challenges,” FSDH notes.
“In addition, the base effect will influence GDP growth, particularly in 2022’Q2 and Q3. Year-on-year growth for both quarters will be lower and this will influence overall growth for the year. For 2022, we expect a GDP growth of 2.6 percent in our moderate case scenario,” analysts at FSDH say.
The services sector will continue to drive GDP growth in 2022 following improved demand as the economy continues to recover, according to the report.
In the last five years, Nigeria experienced two economic recessions, exhibiting a W-shaped recession-recovery cycle.
Economic fluctuations in the past few years have been linked with movements in crude oil prices.
The two periods of recession (2016 and 2020) have reversed the gains recorded in their respective preceding periods.
In full-year 2021, the Nigerian economy will return to positive growth, driven by the higher consumer spending relative to 2020, government interventions and the base effect.
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