The International Monetary Fund (IMF), on Tuesday, reduced its 2022 growth forecast for Nigeria to 3.2% from the 3.4% it projected in June, noting that economic growth in Nigeria could sink further to 3.0% in 2023. The Fund also revised its 2022 growth forecast for South Africa to 2.1% from the 2.12% projected in June.
Consequently, Sub-Saharan Africa’s growth is now expected to slow to 3.6 % in 2022 from 4.7% in 2021 and then could pick up to 3.7 % in 2023. The fund also cut global growth for the fourth time from 6.0% in 2021 to 3.2% in 2022 and 2.7 % in 2023. This is the weakest global growth forecast since 2001, except for the period of the global financial crisis and the acute phase of the COVID-19 pandemic. The weak growth forecast reflects significant slowdowns for the largest economies: a US GDP contraction in the first half of 2022, a euro area contraction in the second half of 2022, and prolonged COVID-19 outbreaks and lockdowns in China with a growing property sector crisis.
According to the IMF, the reduction in growth forecast was based on the prevailing global supply chain disruptions, which have driven up inflation substantially and raised fears of a global recession as central banks tighten monetary policy to tame soaring food and energy prices. The Fund further noted that global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering effects of the COVID-19 pandemic all weigh heavily on the outlook. Based on the report, global inflation is forecast to rise from 4.7% in 2021 to 8.8 % in 2022 but to decline to 6.5% in 2023 and to 4.1% by 2024 and governments are advised to use monetary policy to restore price stability, while applying fiscal policy to alleviate the cost-of-living pressures. Structural reforms can further support the fight against inflation by improving productivity and easing supply constraints, while multilateral cooperation is necessary for
fast-tracking the green energy transition and preventing fragmentation.
We had forecasted in our H2 outlook that the Nigerian economy is expected to grow by 2.8% in 2022. Our outlook was informed by the persistent negative growth in Oil sector (-11.77% in Q2 from -26.04% in Q1 2022); slower growth in Agriculture (1.2% in Q2 from 3.16% in Q1) occasioned by widespread insecurity; and weakened manufacturing sector growth (3% growth in Q2 from 5.89% in Q1) because of surging operating cost. Crude oil production contracted to an all-time low of 0.97mbpd (excluding condensate) in August 2022 and is expected to remain below the budgeted benchmark of 1.6mbpd. The monetary Policy Committee (MPC) has maintained a hawkish stance with Monetary Policy Rate (MPR) at a 20-year high of 15.5% and Cash Reserve Ratio (CRR) jacked up to 32.5%. We expect this will continue to impede business growth as the cost of capital escalates.
We note particularly that the lower foreign exchange earnings from crude oil exports have remained a key drag on the Naira value against the greenback thereby worsening the exchange rate risk for anticipated foreign investment inflows. The Russia-Ukraine war induced supply chain disruption and its attendant impact on global inflation have continued to trigger interest rate hikes in the advanced economies, which in turn will continue to induce capital flights from emerging markets.
