The International Monetary Fund (IMF) cut its global growth forecast in its October 2108 World Economic Outlook (WEO).
The IMF dropped its growth forecast by 0.2 percentage points on the back of increasing US-Sino trade escalations as Emerging Markets (EM) are struggling with tighter liquidity and capital outflows. Contrary to the Fund’s initial July WEO forecast for 2018 and 2019 which was pegged at 3.9%, recent forecast is at 3.7% for both years.
This downward revision can be attributed to a number of factors such as trade war escalations, geopolitical and slowing growth risks in the Eurozone, Brexit, sluggish economic activity with Japan and interest rate increment are causing significant cash outflows amongst Ems.
The Eurozone is getting hammered as Germany in hit by a drop in manufacturing orders and trading volume. Italy looking to increase budget deficit unacceptable
by the EU. Still inconclusive on the way forward with Brexit.
Asian asset classes mostly underperforming across board as President Trump impose novel tariffs on $200 billion worth of Chinese imported goods. China adopting several monetary policies to cushion the immense effect of this imposed tariffs.
China growth forecast cut to 6.2% from 6.4% for 2019 on the back of intensified trade escalations. Commodity-driven economies such as Australia and New Zealand experiencing downturn in respective macrofundamentals as they highly dependent on global trading activities.
Even the Behemoth in the global market space, the US, is not spared from an envisaged slowdown in economic activities. The US growth forecast was cut to 2.5% from 2.7% for 2019 by the Fund as fiscal stimulus is expected to start to wear out during this period. Also, a possible retaliation by China is expected to dampen growth outlook in the US economy.
What this Mean for the Nigerian Economy?
If trade tensions continue in the path of increasing escalations, the EM space will
get hit harder with Nigeria receiving the “indirect heat”.
The Nigerian Stock Exchange All Share Index (ASI) is already down with an estimated YTD 15% loss
in price valuation. Current tensed global trade environment is somewhat a bad timing in the Nigeria capital market space as envisaged local political risk due to the incoming 2019 general elections are keeping Foreign Investors (F.Is) on the side lines.
According to Foreign Portfolio Investment flows, Foreign Investors (F.Is) took out N469.71B as opposed to an inflow of N437.14B in August this
year. As at 2016, F.Is account for around 49% of total shareholding of the Nigerian capital markets. Should trade events continue to escalate we should expect to see slowdown in economic activity within the country going into the election year.
Escalated trade tensions also in the longer term would hurt global demand in oil, thus pushing benchmark price lower which in effect would cause a contraction in the Nigeria’s economic growth as the country is heavily dependent on oil exports.
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This article was contributed by Eagle Global Market (EGM)