. Says Nigeria to maintain 3.4% GDP despite rising inflation
Clara Nwachukwu
The International Monetary Fund (IMF) has warned of imminent global economic recession, as it reviewed downward its growth projections.
The baseline forecast is for growth to slow from 6.1% last year to 3.2% in 2022, a 0.4% lower than in the April 2022 World Economic Outlook (WEO).
The IMF in its “Gloomy and More Uncertain” Outlook released yesterday also notes that “A tentative recovery in 2021 has been followed by increasingly gloomy developments in 2022 as risks began to materialize.”
This is even as the Fund projects the Nigerian economy to maintain a 3.4% gross domestic product (GDP) growth rate despite rising inflation higher than the 3.3% projected by the Central Bank Nigerian (CBN), and lower than the federal government’s 4.20%.
The 3.4% growth is the same level predicted during the last review in April, and comes amid rising inflation, Naira depreciation, and other economic bottlenecks.
In January, the IMF predicted a 2.7% growth rate for Nigeria in 2022, but reviewed the 2023 growth rate downwards to 3.2%.
Tighter monetary conditions will also affect financial stability, requiring judicious use of macro-prudential tools and making reforms to debt resolution frameworks all the more necessary.
Global events
Indeed, “The outlooks for countries in the Middle East and Central Asia and sub-Saharan Africa remain on average unchanged or positive, reflecting the effects of elevated fossil fuel and metal prices for some commodity-exporting countries,” IMF said.
The IMF said the latest outlooks are based on several shocks including high inflation, which hit the world economy that was already weakened by the pandemic.
It said: “Global inflation has been revised up due to food and energy prices as well as lingering supply-demand imbalances, and is anticipated to reach 6.6% in advanced economies and 9.5% in emerging market and developing economies this year—upward revisions of 0.9 and 0.8 percentage point, respectively.”
The Fund also informed that global output contracted in the second quarter of this year, owing to downturns in China and Russia, while US consumer spending undershot expectations as well as in major European economies.
These, it added, are “triggering tighter financial conditions; a worse-than-anticipated slowdown in China, reflecting COVID-19 outbreaks and lockdowns; and further negative spill overs from the war in Ukraine.”
Lower growth earlier this year, reduced household purchasing power, and tighter monetary policy drove a downward revision of 1.4 percentage points in the United States.
In China, further lockdowns and the deepening real estate crisis have led growth to be revised down by 1.1 percentage points, with major global spill overs. And in Europe, significant downgrades reflect spill overs from the war in Ukraine and tighter monetary policy.
In 2023, disinflationary monetary policy is expected to bite, with global output growing by just 2.9%.
Finally, mitigating climate change continues to require urgent multilateral action to limit emissions and raise investments to hasten the green transition.
Overwhelmingly risks
The IMF also identified a number of risks to the outlook, which it described as “overwhelmingly” and “tilted to the downside.”
In particular, it said the war in Ukraine could lead to a sudden stop of European gas imports from Russia; inflation could be harder to bring down than anticipated either if labour markets are tighter than expected or inflation expectations unanchored.
Also, tighter global financial conditions could induce debt distress in emerging markets and developing economies; renewed COVID-19 outbreaks and lockdowns as well as a further escalation of the property sector crisis might further suppress Chinese growth; and geopolitical fragmentation could impede global trade and cooperation.
A plausible alternative scenario in which risks materialize, inflation rises further, and global growth declines to about 2.6% and 2.0% in 2022 and 2023, respectively, would put growth in the bottom 10% of outcomes since 1970.
Taming inflation
The IMF noted that with increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers, adding that tighter monetary policy will inevitably have real economic costs, but delay will only exacerbate them.
“Targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the pandemic and the need for a disinflationary overall macroeconomic policy stance; such policies will need to be offset by increased taxes or lower government spending.
“Tighter monetary conditions will also affect financial stability, requiring judicious use of macro-prudential tools and making reforms to debt resolution frameworks all the more necessary.
Policies to address specific impacts on energy and food prices should focus on those most affected without distorting prices.
And as the pandemic continues, vaccination rates must rise to guard against future variants. Finally, mitigating climate change continues to require urgent multilateral action to limit emissions and raise investments to hasten the green transition.
