Global economy
Global growth impetus in the year 2019 was bedevilled by a number of headwinds: the US-China trade tension, Brexit uncertainty, and tight monetary policy environment. In 2019, the Federal Reserve cut the funds rate three times (against the increasing trend seen in 2018 and expectation for 2019). This year, there are signs of easing on these winds. For example, the U.S and Chinese governments have decided to work the resolution in phases instead of taking on the entire process. The “Phase 1” deal would have the U.S reduce by half the tariff on $120 billion Chinese imports; suspend the imposition of 15 per cent new tariff on $150 Chinese good set to take effect on 15 December 2019. The U.S would, however, retain the 25 per cent on $250 billion Chinese imports to the U.S.
On the other hand, while China has equally suspended a planned retaliatory move on the U.S., they pledged to buy $32 billion ($16/year) worth of U.S agricultural produce over the next two years. This is on top of a baseline of $24 billion in Chinese purchases in 2017 before the trade dispute. The intention is to go immediately into other serious phases of the resolution before the November 2020 U.S elections.
A Goldman Sachs report shows that the trade dispute subtracts about 0.4pp from quarterly annualized growth in the US and 0.6pp in China. Therefore, an ease in the tension due to progressive agreements would imply a “subtraction of negatives”. In addition, the perceived consensus in the Brexit debate deducible from the election of a new Prime minister, Boris Johnson in the UK, encourages the expectation of some degree of recovery and growth of 1.4 per cent in the coming year.
In all, forecasts estimate a growth of about 3.2 per cent in 2020 from 3.0 per cent in 2019 on the grounds of lesser uncertainty in the UK (and the EU by extension) in the event of a successful withdrawal from the EU, improvement in the US-China trade negotiations, and the improvements in other emerging market economies such as Brazil, India, and Russia. However, based on established recession models, there are arguments of 20-30 per cent chance of the global economy slipping into a recession in 2020. The elections in US and Israel in 2020 are countries to sway the political arena.
Table 1 Global growth outlook for 2020
| Countries | 2019E | 2020f | 2021f |
| US | 2.3 | 1.8 | 1.9 |
| UK | 1.2 | 1.1 | 1.5 |
| Germany | 0.5 | 0.7 | 1.2 |
| France | 1.3 | 1.2 | 1.4 |
| Italy | 0.1 | 0.5 | 0.6 |
| Spain | 2.0 | 1.7 | 1.7 |
| Euro Area | 1.1 | 1.0 | 1.3 |
| Developed Markets | 1.7 | 1.5 | 1.7 |
| China | 6.1 | 5.9 | 5.7 |
| India | 5.6 | 5.9 | — |
| Brazil | 1.0 | 2.0 | 2.5 |
| Russia | 1.1 | 1.6 | 1.9 |
| Emerging market | 4.3 | 4.7 | 4.9 |
| Global | 3.1 | 3.2 | 3.4 |
Source: Bloomberg
Nigerian economy: 2019 in review
For Nigeria as with some other countries including South Africa, it was an election year which made things kick-off rather slowly. The capital market was hard hit as the NSE ASI fell 14.1 per cent to 27,002.15. The sentiments stemmed mainly from the uncertainties around the election and also the shocking realities of the outcome of the election. Albeit GDP growth increased by 2.01. 2.12 and 2.28 per cent in Q1, Q3 and Q4 2019 respectively. The inflation rate also declined to 11. 37 and 11.31 per cent in January and February respectively from the December 2018 peak of 11.44 per cent. Other highlights in the year 2019 include:
- MPC cut interest rate by 50 basis points to 13.5% per annum first time since July 2016 while holding other measures the same. This was in line with a pro-growth strategy in the real sector as the target for 2019 was 2.3 per cent
- The CBN increased the Loan to Deposit ratio (LDR) from 60 per cent to 65 per cent. This move was to encourage lending to SMEs, retail and mortgage sectors so as to spur growth in the real sector.
- CBN restricts purchases of OMO bills to foreign and institutional investors.
- Two major telecoms listing in the local bourse: MTN Nigeria and Airtel Nigeria. Yet, year-to-date returns continued to decline: -3.5 to -12.1 per cent in the second and third quarter of the year.
- Minimum wage legislation was passed increasing the minimum wage from N18,000 to N30,000.
- Nigerian signed and ratified the optimistic African Continental free Trade Agreement (AfCFTA), after months of national deliberation.
- Two months after signing the AfCFTA, Nigeria shutdown it land borders to neighbouring countries. The trade sector experienced a contraction of -1.45 per cent since while the agricultural sector expanded.
Outlook for 2020
The AfCFTA as it goes into effect in the coming year would mean the dawn of new reality for the countries in the sub-region. The fundamental weaknesses in intra-African trade, as well as existing regional treaties and arrangement, would challenge the success of the AfCFTA. Like Nigeria, more countries might become protectionist in reaction to the outcome of regional integration.
As of Q3 2018, the unemployment rate was about 23.1 per cent (last available statistics). There was less than the usual liquidity flush in the last election compared to the previous ones. The CBN has also been on the watch on monetary policy tools. The annual inflation rate in 2019 is about 11.3 per cent compared to 12.7 in 2018. Growth rate in GDP has been upward trending in the year with the yearly average expected to be 2.15 per cent based on a Q4 growth of 2.2 per cent. (Economic realities would interplay with seasonal effect to determine the GDP growth in Q4). This might mean in all, a small moderation in the unemployment rate.
The outlook on growth in 2020 expected to be above 2 per cent (though below 3 per cent ERGP target); inflation would trend higher in the first months of the year and decline as the year progresses. The market may rebound eventually. The US-China trade tension, as well as the Brexit and the AfCFTA, would be the major wind to watch in terms of external shocks.
