• Wednesday, February 21, 2024
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Weaker global growth ominous sign for Nigeria’s sluggish economy

Nigerian economy

The signs of a looming global recession are getting stronger by the day. In a recent report by the Brookings Financial Times TIGER indexes which track global economic recovery, economic growth is declining in all of the world’s major economies, fuelled by growing trade tensions, waning global demand, and geopolitical uncertainties.

In Asia and Europe, factory activity tanked last month while the US showed a slight economic expansion. According to the International Monetary Fund, Asia is the world’s growth engine and contributes more than 60 percent of global GDP.

Asian powerhouse, Singapore’s economy performed poorly in the second quarter, with the slowest annual growth in a decade and sharp shrinkage from the previous three months as its manufacturing sector continued to decline.

Singapore is often held up as a proxy for global demand given its heavy reliance on foreign trade.
On a quarterly, seasonally adjusted and annualised basis, GDP shrank 3.4 percent in April-June from the previous three months, the biggest quarterly contraction in nearly seven years, since a 4.1 percent fall in the third quarter of 2012 from the quarter earlier.

Also, the world’s second-largest economy, China, did not fare better as trade figures show that export fell 1.3 percent last month while imports tanked more than expected by 7.3 percent.
Sadly, all these tell of things to come, especially in emerging markets such as Nigeria, given dearth of macroeconomic policy alternatives to stimulate economic growth and buffers to cushion the effect of any impending recession.

Nigeria’s recent economic recession, the worst in 29 years, saw oil prices crashing, reaching lows that many had not seen in decades. If the downturn in global economy persists, there could be a drop in oil prices and foreign remittances, and a selloff in stocks coupled with a flight to safety from emerging markets to developed markets.

Nnamdi Olisaeloka, an analyst at Zedcrest Capital, said the major concern for Nigeria should be the likely impact on global oil demand which may tend to make the price of crude oil more volatile towards the downside and impact government revenues and earnings.

“It even tends to be a little positive because it forces the Federal Reserve and other monetary authority to lower interest rates making it a plus for emerging markets,” he added.
Abimbola Omotola, fixed income and FX markets analyst at Chapel Hill Denham, believes that a global slowdown would affect everyone either directly or indirectly.

“This would affect the commodities market and pricing, an escalation of the trade war would have an impact on risk appetite,” he said.

According to Omotola, the outcome from the G-20 meeting where the United States and China agreed to resume trade talks would finally lay to rest the looming trade war.
“It is going to be slower global growth, but we don’t expect to see a recession soon,” he added.