Nigeria may see further drop in crude oil prices and demand as the World Bank on Tuesday projected the global economic growth to soften from a downwardly revised 3 percent in 2018 to 2.9 percent in 2019 amid rising downside risks to the outlook.
The 2.9 percent global growth rate is lower than the World Bank’s estimate and forecast growth rate of 3.1 percent for 2017 and 2018 which was released in its Global Economic Prospects report (June 2018 Edition). It is also lower than the forecast of 3.0 percent released in the same report for 2019.
“The trade war between US and China may be responsible for this downward review. Slow global growth may lead to a drop in the demand for crude oil and subsequently drop in crude oil price. This may reduce the revenue and foreign exchange earnings for Nigeria,” Ayodele Akinwunmi, head, research, FSDH Merchant Bank Limited, said.
These developments, Akinwunmi said, may cause currency weakening, rising inflation rate and increase in the interest rate and yields. In addition, it may also lead to other macroeconomic instability in Nigeria due to significant drop in foreign direct investments and foreign portfolio investments in Nigeria.
Meanwhile, a report by the UN Secretary-General on the ‘Socioeconomic Trends’ in the West African sub-region predicted 2.1 percent economic growth for Nigeria, which is expected to drive the regional growth forecast of 2.9 percent.
International trade and manufacturing activity has softened, trade tensions remain elevated, and some large emerging markets have experienced substantial financial market pressures.
Growth among advanced economies is forecast to drop to 2 percent this year, the January 2019 Global Economic Prospects says. Slowing external demand, rising borrowing costs, and persistent policy uncertainties are expected to weigh on the outlook for emerging market and developing economies. Growth for this group is anticipated to hold steady at a weaker-than-expected 4.2 percent this year.
Johnson Chukwu, managing director/CEO, Cowry Asset Management Limited, told BusinessDay on phone that slowdown in Nigeria’s economic growth is driven by two factors – local political environment and the performance of crude oil in the international market.
He said Nigeria is connected to the global economy through crude oil and that the slowdown in global economy would impact negatively on the price and demand for crude oil.
Nigerian economy is actually not a determinant of what happens to global economy but a recipient, Chukwu said, adding that there is need for Nigeria to focus on stable political environment and appropriate economic policy.
“At the beginning of 2018, the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead,” said World Bank Chief Executive Officer Kristalina Georgieva. “As economic and financial headwinds intensify for emerging and developing countries, the world’s progress in reducing extreme poverty could be jeopardized. To keep the momentum, countries need to invest in people, foster inclusive growth, and build resilient societies.”
The upswing in commodity exporters has stagnated, while activity in commodity importers is decelerating. Per capita growth will be insufficient to narrow the income gap with advanced economies in about 35 percent of emerging market and developing economies in 2019, with the share increasing to 60 percent in countries affected by fragility, conflict, and violence.
“It is not surprising that global growth is expected to be at a modest rate of 2.9 percent in view of the slowing growth in China, Trump-inspired trade war and challenges with Brexit among other key factors,” said Taiwo Oyedele, head, tax and regulatory services, PwC.
“Unfortunately, Nigeria’s projected growth is not better than the global average while our population growth rate is higher. If the trend of fragile GDP growth we witnessed in the recent past continues in 2019, it means Nigerians will even be poorer in 2019 than 2018,” Oyedele said.
A number of developments could act as a further brake on activity. A sharper tightening in borrowing costs could depress capital inflows and lead to slower growth in many emerging market and developing economies. Past increases in public and private debt could heighten vulnerability to swings in financing conditions and market sentiment. Intensifying trade tensions could result in weaker global growth and disrupt globally interconnected value chains.
HOPE MOSES-ASHIKE
