CardinalStone Research analysts have pointed to the potential for an uptick in domestic consumption in 2024 through the prospect of increased wages.
Its latest economic outlook report titled ‘Sailing through troubled waters’, highlights a favourable environment for wage growth this year, with private sector entities possibly considering salary hikes, driven by mounting inflation and the forthcoming implementation of the Federal Government’s revised wage structure scheduled for April.
The report read:
- “We see legroom for higher wages in 2024, with inflation forcing the private sector to push up salaries and the government set to initiate a new wage regime in April 2024.
- “While higher wages could increase inflationary risk if production does not keep pace, we expect the impact of the high base effects on some inflation buckets to cap the scope for a strong YoY increase in the broad CPI reading.
- “In addition, wages have historically had a weak correlation with inflation (0.28 over the last 12 years), possibly due to Nigeria’s inflation computation methodology.
- “In any case, we are of the view that higher wages could support recovery in domestic consumption, with a positive passthrough to the economy.”
10.6% decline in domestic consumption in 2023
In the wake of these policy changes, the CardinalStone report highlighted a significant decline in domestic consumption, constituting a substantial 60% of the overall economy.
This decline amounted to a cumulative contraction of 10.6% in 2023, which stood in stark contrast to the relatively milder contractions of 2% and 5.3% witnessed during the COVID-19 pandemic and the 2016 recession, respectively.
The report read:
- “On the heels of the policies, domestic consumption (c.60.0% of the economy) declined by c.10.6% in 2023, materially weaker than the 2.0% and 5.3% contractions during the Covid period and 2016 recession, respectively.
- “Despite the government’s efforts to alleviate the impacts on the cost and standard of living of the populace, the country’s poverty level worsened in 2023. The sluggish economic growth also became more entrenched due to flat investments and low unemployment, which increased the burden of catering for dependents.”
Inflation to peak by Q1 2024
According to the report, inflation is expected to peak by Q1 2024, reaching 29.5% by March this year.
The report noted:
- “Inflation is projected to peak in the first quarter of 2024, settling at c.29.5% by March. From the second quarter of the year, we expect the base effect and the dissipating impact of the large gasoline price increases to propel a disinflation, helping 2024 inflation to average 22.0% from 24.5% expected in 2023.
- “In addition, the sustained hawkish disposition of the CBN and reduced deficit financing to the government due to expected gains from subsidy removal could lower the broad money supply, which is positive for inflation.
- Despite the expected moderation, our projected inflation is well above the long-run average of 14.0% partly reflecting pressure points currency pressures.”
Also, the CardinalStone report underscored the impact of recent economic reforms initiated by the current administration, notably the removal of subsidies and efforts to streamline exchange rates, as significant contributors to the elevated inflation levels in the country.
The Consumer Price Index, serving as a gauge of inflation in Africa’s largest economy, has surged to its highest point in 18 years, largely attributable to these Federal Government reforms, including the removal of petrol subsidies and the devaluation of the naira.
Data from the Nigerian Bureau of Statistics (NBS) as reported by Nairametrics revealed that inflation climbed to 28.2% in November of the previous year, up from 27.33% in October.
More Insights
In response to recent economic developments, the Nigerian Government had previously announced a revised minimum wage set to be rolled out commencing April 1, 2024, marking the end of the existing minimum wage of N30,000 by March 2024.
Idris Mohammed, the Minister of Information and National Orientation, disclosed that a fresh wage structure would take effect on April 1, 2024, and the government is currently engaged in discussions with labour representatives to establish a committee for formulating this new compensation framework.
It is worth noting that the government has outlined plans to allocate an average of N5.8 trillion over the next three years towards personnel expenses.
President Bola Tinubu has conveyed the Federal Government’s unwavering commitment to implementing a new national living wage for workers in 2024, emphasizing its economic and moral imperative, as conveyed in his New Year message.
However, it is pertinent to acknowledge that the National Assembly reduced allocations designated for minimum wage-related expenditures in the 2024 budget, raising concerns about the potential repercussions on workers and their economic well-being, particularly in the context of ongoing economic challenges.
