Nigeria, Africa’s largest economy and most populous country, is expected to shrink by 3.2 percent in 2020, the World Bank Group said in its June 2020 Global Economic Prospects on Monday.
This year’s contraction in activity is set to be the most severe in four decades and this is as a result of the unprecedented collapse in oil prices.
Ayodeji Ebo, managing director, Afrinvest Securities Limited, said the contraction of the Nigerian economy is not a surprise as major sectors have been impacted negatively due to the lockdown caused by the COVID-19 pandemic.
Beyond the impact of COVID-19, he said the FX illiquidity can plunge Nigeria into more contraction if further prolonged, hence the CBN needs to improve liquidity and provide clearer direction.
“The FG is working to spend N2.3trn to fund its Economic Sustainability Plan. If this is implemented, we could see a rebound in Q4:2020 or early next year,” Ebo told BusinessDay on Monday.
The economy depends heavily on oil revenues, which represent over 80 percent of exports, about one-third of banking-sector credit, and one-half of general government revenues.
Faced with a twin shock, the country’s slump in activity has been compounded by measures to slow the domestic spread of the virus – including closing of national and state borders, schools, and the temporary shutdown of markets.
The oil sector is projected to contract by 10.6 percent, while non-oil output will fall by 2.1 percent. The recovery in Nigeria is forecast to be moderate. Lower oil prices are expected to dent investor confidence, while the assumed fiscal adjustment to lower oil revenues and tighter borrowing conditions is expected to constrain public investment.
Emerging market and developing economies (EMDEs) are expected to shrink by 2.5 percent this year, their first contraction as a group in at least 60 years, the World Bank Group said.
Per capita incomes are expected to decline by 3.6 percent, which will tip millions of people into extreme poverty this year.
Ayodele Akinwunmi, relationship manager, investment banking at FSDH Merchant Bank Limited, said with the adverse implications of the COVID-19 pandemic on the global economy and the financial market, the forecast was expected.
However, he said there are opportunities for the emerging market and developing countries to take advantage of the current low interest rates and high liquidity in the global financial market to invest in critical sectors and infrastructures that will help countries to develop and recover faster post COVID-19.
The World Bank said economic activity among advanced economies is anticipated to shrink 7 percent in 2020 as domestic demand and supply, trade, and finance have been severely disrupted.
The swift and massive shock of the coronavirus pandemic and shutdown measures to contain it have plunged the global economy into a severe contraction. According to World Bank forecasts, the global economy will shrink by 5.2 percent this year. That would represent the deepest recession since the Second World War, with the largest fraction of economies experiencing declines in per capita output since 1870, the World Bank said in its June 2020 Global Economic Prospects.
The blow is hitting hardest in countries where the pandemic has been the most severe and where there is heavy reliance on global trade, tourism, commodity exports, and external financing. While the magnitude of disruption will vary from region to region, all EMDEs have vulnerabilities that are magnified by external shocks, the World Bank said.
Moreover, interruptions in schooling and primary healthcare access are likely to have lasting impacts on human capital development.
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