Update1: Nigeria's economy to contract by-3.4% in 2020, says IMF

The International Monetary Fund (IMF) on Tuesday projected Nigeria’s economy would contract by -3.4 percent in 2020 from 2.2 percent in 2019.

The Washington-based Fund expects the economy to grow by 2.4 percent in 2021.

Gita Gopinath, IMF chief economist, disclosed this while presenting the world economic outlook at the ongoing virtual Spring meeting of the IMF and the World Bank group in Washington D.C.

Inflation rate is projected to rise by 13.4 percent in 2020 from 11.4 percent in 2019, and to moderate to 12.4 percent in 2021, higher than the Central Bank of Nigeria’s single digit target of 6-9 percent.

On Nigeria’s current account, IMF projects -3.3 percent contraction in 2020 from a negative of -3.8 percent in 2019.

Damilola Adewale, a Lagos-based economist and independent consultant, said IMF’s forecast for full year 2020 looks pessimistic.

It’s no brainier that Nigeria’s economy will contract by H1 2020, Adewale said. However, by H2 2020, the virus should have been arrested, global economic activities would return to normalcy, and oil prices would rebound (since OPEC+, G20 pact would have been effective).

“So, putting these together, relatively average growth performance in H2 2020 will moderate the impact of contraction of H1 2020 on full-year growth numbers. So -3.4 percent is somehow unrealistic,” Adewale said.

According to IMF, global growth is projected at -3.0 percent in 2020, an outcome far worse than during the 2009 global financial crisis. The growth forecast is marked down by more than 6 percentage points relative to the October 2019 WEO and January 2020 WEO Update.

Other regions are projected to experience severe slowdowns or outright contractions in economic activity, including Latin America (-5.2 percent), with Brazil’s growth forecast at -5.3 percent and Mexico’s at -6.6 percent; emerging and developing Europe (-5.2 percent), with Russia’s economy projected to contract by -5.5 percent; the Middle East and Central Asia (-2.8 percent), with Saudi Arabia’s growth forecast at -2.3 percent, with non-oil GDP contracting by 4 percent, and most economies, including Iran, expected to contract; and sub-Saharan Africa (-1.6 percent), with growth in Nigeria and South Africa expected at -3.4 percent and -5.8 percent, respectively.

Ayodele Akinwunmi of FSDH Merchant Bank said on Twitter that the good news is that Nigeria and SA would grow by 2.4 percent and 4.0 percent, respectively, in 2021.

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“I believe Nigeria can avert the contraction if we put in place home-grown economic policies,” Akinwunmi said.

Following the dramatic decline in oil prices since the beginning of the year, near-term prospects for oil-exporting countries have deteriorated significantly: the growth rate for the group is projected to drop to -4.4 percent in 2020.

The level of GDP at the end of 2021 in both advanced and emerging markets and developing economies is expected to remain below the pre-virus baseline (January 2020 WEO Update).

Ayorinde Akinloye, analyst at Lagos-based CSL Stockbrokers, said a -3.4 percent is what you can call an optimistic case, provided the country is able to contain the coronavirus before the end of H1 which would see economic activities begin to recover moderately in Q3 and Q4 in bid to cover up for poor Q2. If the virus is not contained in time, it could be much worse, he said.

“I don’t see Nigeria rebounding significantly in 2021 with IMF projection at 2.4 percent. I think recovery would be slower in Nigeria and we may face a deep prolonged recession before we begin to recover,” Akinloye said.

“For example, over 60 percent of GDP is contributed by household consumption. When you expect unemployment to be high and income to be lower, you would expect that consumers will spend less.

Business investment will also be low. Government revenue from crude oil will plunge, tax receipts will go down, etc,” he said.

Looking at current account which is import and export, Akinloye said import would continue to rise putting the country at net imports.

“On a sectoral basis, agriculture and telecoms are the main sources of optimism while other sectors would be badly hit by the crisis. So, basically we are in for a longer recession which will most likely force the government to implement the reforms that they have refused to do,” he said.

HOPE MOSES-ASHIKE & BUNMI BAILEY

Hope Moses-Ashike

Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.