IMF holds Nigeria’s growth projection at 3.4 per cent
• Downgrades global average by 0.4 percentage points
• Raises fear of 1980s sovereign debt distress replay
The International Monetary Fund (IMF) has held its projection about Nigeria’s economic growth prospect at 3.4 per cent amid growing concern about elevated inflation and the possibility of a technical recession in the year.
The position is contained in the July World Economic Outlook (WEO) update released, yesterday. The Fund expects the country’s growth to moderate to 3.2 per cent (a percentage higher than its earlier forecast) next year.
The IMF’s view is rather pessimistic when weighed against last year’s growth, which stood at 3.6 per cent. The 3.4 per cent yearly growth projection is moderately above the 3.1 per cent growth posted in the first quarter.
The Fund is also more bullish about sub-Saharan Africa (SSA), which is expected to grow 3.8 per cent this year and four per cent through next year. The figures are not different from April forecasts about the performance of the regional economy.
On a general note, the WEO update was influenced by ongoing Russia’s invasion of Ukraine, associated costs and elevated global inflation.
Hence, the average global growth was downgraded 0.4 percentage points to 3.2 per cent for 2023 and by 0.7 percentage points for next year when the growth is expected to slow to 2.7 per cent.
The Eurozone, which is facing an uncommon energy crisis, is a major blight on global growth prospects. Growth of the economic bloc, according to the IMF, could slow from 5.4 per cent posted last year to 2.6 per cent this year and further down to 1.2 per cent next year.
The situation in Emerging and Developing Europe, where Russia and Ukraine belong, is even worse with the growth expected to fall into the negative region (-1.4 per cent) region.
Latin America and the Caribbean could also see a negative growth rate of six per cent in the year.
The institution raised concern about the impact of rising interest rates in the developed countries on emerging markets and hoped respective countries would also raise interest rates. It warned of sustained capital flight from developing countries in response to rising interest rates.
“Rising borrowing costs combined with high inflation and slowing growth have prompted comparisons to the 1970s and early 1980s. In the 1970s, surpluses from oil exporters — which had gained from higher energy prices — boosted funding for emerging market economy debt markets. Central banks tightened policies in the early 1980s to fight high inflation, which led to disorderly external adjustment and debt defaults in some cases, notably in Latin America,” the report said.
IMF also holds a pessimistic view on inflation, reviewing its earlier expectation upward to 8.3 per cent in the year. The new projection is 140 basis points (bps) above April’s projection.
While it acknowledged the need to rein in persistent inflation, it warned against the hidden pains of deflation, saying “disinflation is more costly than expected.”
The report comes on the heels of a possible fourth rate in the year by the Federal Open Market Committee (FOMC), the rate-fixing arm of the Federal Reserve System. With its July meeting expected to end today, analysts are already looking forward to another 75 bps interest rate hike, the magnitude of which would be the second this year.
The Committee had not raised its rate by 0.75 per cent since 1994. From March, the interest rates, current at 1.75 per cent, have added a combined 150 bps, and economists look forward to a sustained aggressive tightening, especially with inflation still not slowing with a bullish labour market providing the Fed leeway.