The International Monetary Fund (IMF) says it is sees inflation levels for Nigeria and Angola, Africa’s two key large economies remain in double digits, eventhough commodity prices in the region could ebb slightly in 2018 through 2019.
Nigeria’s inflation eased to 13.34 percent in March 2018-the fourteenth consecutive deceleration since January 2017, raising the hope that the numbers which the Central Bank of Nigeria (CBN) continue to watch could ebb to the 6-9 percent target range by year end.
But the fund said the uptick in inflation expectations for the two countries would reflect the pass-through effects of currency depreciation for Angola and supply factors, and assumed monetary policy accommodation to support fiscal policy for Nigeria.
The IMF had ealrier in the year commended what it called the CBN’s tightening bias” in 2017, and expects such stance to be sustained until inflation abates to the single digit target range. The CBN left benchmark rates unchanged for the ninth straight time, citing inflation concerns.
In its latest World Economic Outlook (WEO) released on Tuesday, the Fund also retained its earlier growth forecast for the Nigerian economy at 2.1 percent in 2018, up from 0.8 percent last year. It said the expected improvement in growth would be helped by improvements in oil production and prices as well as full year impact of greater foreign exchange availability and recovering oil production.
The IMF is particularly concerned that the Nigeria’s economy remains vulnerable despite gradual exit from recession as growth still remains largely driven by the by oil revenues and gains from agriculture.
The economy expanded with an estimated 1.92 percent in the third quarter of 2017 and 0.83 percent in the entire year, but the IMF is worried that the improvements were yet to boost non-oil, non-agricultural activity.
In the latest WEO released at the just commenced spring meetings of the IMF and World Bank in Washington DC, the IMF projected that oil prices would average $65.3 percent a barrel in 2018 up from $52.8 percent in 2017 and above the $50.2 per barrel projected in October 2017.
However, as supply recovers, the IMF expects oil prices to decline to $58.2 per barrel in 2019, and further to about $58.6 a barrel in 2023.
According to the Fund, the world economy continues to show broad-based momentum, noting that against what it sees as a positive backdrop, the prospect of a similarly broad-based conflict over trade presents a jarring picture.
“Three months ago, we updated our global growth forecast for this year and next substantially, to 3.9 percent in both years,” Maurice Obstfeld – Economic Counsellor and Upswing, Structural Change in Director of the Research Department, IMF, said, briefing the press on the flagship report titled, ‘Cyclical Upswing, Structural Change’.
“That forecast is being borne out by continuing strong performance in the euro area, Japan, China, and the United States, all of which grew above expectations last year. We also project near-term improvements for several other emerging market and developing economies, including some recovery in commodity exporters. Continuing to power the world economy’s upswing are accelerations in investment and, notably, in trade.
“Emerging and developing economies present a diverse picture, and among those that are not commodity exporters, some can expect longer-term growth rates comparable to pre-crisis rates.
“Many commodity exporters will not be so lucky, however, despite some improvement in the outlook for commodity prices. Those countries will need to diversify their economies to boost future growth and resilience,” Obstfeld explained.
The IMF also warned that Geopolitical risks should not be discounted; especially the recent escalating tensions over trade present a growing risk.
“Perceptions of these risks could already be taking a toll. For example, while global purchasing managers’ indexes remain in expansionary territory, they have recently softened—in advanced and emerging market economies alike—owing in part to weakening export orders. Financial conditions remain easy, as just noted, but have tightened somewhat since the start of the year.
He recalled the IMF continuous advise that the current cyclical upswing offers policymakers an ideal opportunity to make longer-term growth stronger, more resilient, and more inclusive.
“The present good times will not last for long, but sound policies can extend the upswing while reducing the risks of a disruptive unwinding. Countries need to rebuild fiscal buffers, enact structural reforms, and steer monetary policy cautiously in an environment that is already complex and challenging.
“..the prospect of trade restrictions and counter-restrictions threatens to undermine confidence and derail global growth prematurely. While some governments are pursuing substantial economic reforms, trade disputes risk diverting others from the constructive steps they would need to take now to improve and secure growth prospects.
“Governments need to rise to the challenges of strengthening growth, spreading its benefits more widely, broadening economic opportunity through investments in people, and increasing workers’ sense of security in the face of impending technological changes that could radically transform the nature of work. Fights over trade distract from this vital agenda, rather than advancing it.”
The IMF believes that there is room to strengthen the current system rather than risk bilateral fragmentation of international trade as it commended those the eleven-country Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the forty-four-country African Continental Free, Trade Area, saying that it “hold out promise.”
“Each national government can do much on its own to promote stronger, more resilient, and more inclusive growth. Multilateral cooperation remains essential, however, to address a range of challenges in addition to the governance of world trade.
The Fund sees the other challenges to include climate change, infectious diseases, cyber-security, corporate taxation, and control of corruption—among others.
“Global interdependence will only continue to grow and unless countries face it in a spirit of collaboration, not conflict, the world economy cannot prosper,” it warned.
Also co-briefing the press, Malhar Nabar, Deputy Division Chief, Research Department of the IMF said primarily, there’s a need for the commodity exporters to diversify away from resource extraction to other sectors and more broadly a need to put in place more policies that encourage more broad based growth and address constraints that exist in markets across the region.
Speaking to the possible spillovers from the US-China trade wars, Nabar said it was still early days to assess.
“Our sense is that the direct impact on the directly affected countries will be quite limited. But there is a question on the sentiments of the financial markets and to the extent that frontier economies, other economies in the sub-Saharan African region are affected by the changes in the financial markets, that could be a channel through which economies are affected by the developments that we are seeing on the r trade front,” he stressed.
Onyinye Nwachukwu, Washington DC
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