IMF Projects 2.5% Growth for Nigeria in 2020, 2021
UMORU ABDULKADIR
The International Monetary Fund (IMF) has projected Nigeria’s Gross Domestic Product (GDP) growth at 2.5 per cent for the year 2020 and 2021 respectively, higher than the 2.3 per cent 2019 growth forecast.
This latest forecast was contained in the Fund’s 2020 and 2021 World Economic Outlook (WEO) released Monday
It projected that Nigeria’s economy will grow at 2.5 per cent this year and in 2021 while Sub-Saharan African growth is expected to strengthen to 3.5 per cent in 2020–21 (from 3.3 per cent in 2019).
Earlier, the World Bank had projected 2.1 per cent growth in its World Economic Outlook released on January 8, 2020.
Meanwhile, the Fund, in its regional economic outlook released in October last year, projected that Nigeria will grow 2.3 per cent in 2019 and 2.5 per cent this year while also projecting the Sub-Sahara-African region-wide economy to grow at 3.2 per cent and 3.6 per cent for 2019, and 2020 respectively.
Nevertheless, in its latest WEO report, the Fund projected growth of 3.5 per cent in 2020–21 for sub-Saharan Africa, 0.1 percentage point lower than the October WEO for 2020 and 0.2 percentage point lower for 2021.
This reflects downward revisions for South Africa (where structural constraints and deteriorating public finances are holding back business confidence and private investment) and for Ethiopia where public sector consolidation, needed to contain debt vulnerabilities, is expected to weigh on growth, the Fund said.
Correspondingly, in its latest WEO report, the IMF predicted that the world economy will strengthen in 2020, albeit at a slightly slower pace than previously anticipated amid threats related to trade and tensions in the Middle East.
According to the IMF, “Global growth, estimated at 2.9 per cent in 2019, is projected to increase to 3.3 per cent in 2020 and inch up further to 3.4 per cent in 2021. Compared to the October WEO forecast, the estimate for 2019 and the projection for 2020 represent 0.1 percentage point reductions for each year while that for 2021 is 0.2 percentage point lower. A more subdued growth forecast for India accounts for the lion’s share of the downward revisions.”
While the global growth rate is put at 3.3 and 3.4 respectively for this year and next year, the Fund lowered 2020 projections for the U.S. and the euro zones, whereas India’s forecast was cut by more than a percentage point. It also slashed its prediction for world trade volume growth to 2.9 per cent from 3.2 per cent.
The Fund expressed concerns over the threat posed to crude oil supply by U.S-Iran face-off, uncertainty over trade talks and social unrest and weather-related disasters.
“Over the past three months, markets have again been driven by two main factors: monetary policy and investor perceptions about trade tensions. Monetary policy has remained supportive. For example, the US Federal Reserve cut its policy rate by 25 basis points; the European Central Bank restarted net asset purchases at a pace of €20 billion per month; the People’s Bank of China reduced its medium-term lending facility rate by 5 basis points; in Turkey, the central bank cut its policy rate by 450 basis points; while the central banks in Russia and Brazil reduced their interest rates by 75 and 100 basis points, respectively.
“On trade tensions, the market has oscillated back and forth according to the latest trade-related news, including the recent announcement of a “Phase One” agreement on trade between the United States and China. On net, world equity markets have risen by about 8 per cent over the past three months and long-term yields in the euro area, Japan and the United States have increased by 15–30 basis points from very low levels.
“These developments have left US financial conditions unchanged on net. Increased corporate valuations, on the back of higher equity markets and tighter corporate bond spreads, were broadly offset by the rise in long-term yields. The level of financial conditions, however, remains accommodative.”
Further expressing worries over the upswing in geopolitical tensions, the Fund stated’ “Rising geopolitical tensions, notably between the United States and Iran, could disrupt global oil supply, hurt sentiment, and weaken already a tentative business investment. Moreover, intensifying social unrest across many countries – reflecting, in some cases, the erosion of trust in established institutions and lack of representation in governance structures – could disrupt activity, complicate reform efforts and weaken sentiment, dragging growth lower than projected.
“Where these pressures compound ongoing deep slowdowns, for example, among stressed and underperforming emerging market economies, the anticipated pickup in global growth – driven almost entirely by the projected improvement (in some cases, shallower contractions) for these economies – would fail to materialize,” the IMF stated.
According to the IMF, low-interest rates and reduced trade tensions will likely buoy the global economy over the next two years and help nurture steady if modest growth.
“Emerging market economies in macroeconomic distress related to domestic imbalances will need to continue making the policy adjustments necessary for rebuilding confidence and putting in place the conditions for a return to stable and sustainable growth.
“In these contexts, ensuring adequate safety nets to protect the vulnerable remains critical within overall existing constraints. High-debt economies should generally aim for consolidation — calibrating its pace to avoid a sharp slowdown in activity — by improving subsidy targeting, broadening the revenue base, and ensuring stronger compliance.”
While the IMF expected monetary policy remain accommodative where inflation is still subdued with interest rates remaining low for long, macro-prudential tools should be proactively used to prevent the build-up of financial risks.
“In order to be able to effectively tackle the risks, emerging market economies in macroeconomic distress related to domestic imbalances, need to continue making the policy adjustments necessary for rebuilding confidence and putting in place the conditions for a return to stable and sustainable growth,” the IMF said.
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