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‘Recession: Government should develop robust capacity to anticipate’

By Adi Bongo
31 July 2016   |   3:17 am
The cycle of boom and burst recession is characteristic of capitalist economies. It’s natural. Economists largely maintain that once you have the combination of rising prices, falling output, and increasing government borrowing you are on the road to recession.

Dr.-Bongo-Adi

The cycle of boom and burst recession is characteristic of capitalist economies. It’s natural.Economists largely maintain that once you have the combination of rising prices, falling output, and increasing government borrowing you are on the road to recession.

However, according to a recent work by Robert Schiller and the Nobel Laureate, George Akerlof, recession could also be set off by purely psychological factors induced by pessimistic rumours. This, according to them, is the work of “animal spirits” borrowing from Keynes.

Clearly, we have seen all the signals of recession manifesting in Nigeria: Output is in the negative territory; inflation is spiraling out of control; and unemployment is at an all-time high. In addition to these, we have the contagious pessimistic narratives of doom coming from every corner, inducing individuals to reduce spending. We also have the government’s own confirmed fallibility, imprudence, incoherence and sometimes, outright lies. The combination of these doesn’t inject optimism, rather demotivate individuals, making them cautious and paint a doomsday scenario. This definitely dampens consumer confidence.

Although, the practice is to declare a recession if the economy registers two consecutive quarters of negative growth rate, but technically speaking, if we begin to count the negative growth as soon as the economy begins to contract then it is clear we’ve been in recession since the beginning of this year.Some are of the view that we are in a stagflation – a period of rising inflation accompanied by high unemployment and deleveraging.

The government should stop playing the Ostrich and admit that things are really bad. At least, being honest about the situation rather than allowing the citizens to second-guess them should be part of the remedy. The fault is now theirs and not in the previous administration. I am of the view that the policy inconsistency of this government is worsening the situation.

We say we have floated the Naira and yet we don’t yet see the expected waves in the naira flow. The budget talks about reflating the economy yet the last MPC meeting raised the rates. I guess the policy makers are playing joggle with inflation, exchange rate and reflation. It’s a tough battle and there isn’t an easy way out. Matters would have been easier if the rest of the world weren’t also tending towards recession. But with recession looming all over the world and no hope for oil price picking up, the best the government could hope is to ensure they have robust anticipation of potential consequences of policy actions. That surely would help control the negative fallouts.
• Bongo is a Faculty Member, Lagos Business School