IMF bullish on global, Nigeria growth, FBNQuest analysts bearish

BY CHARLES ABUEDE

The International Monetary Fund (IMF) has predicted a moderate but upgraded growth outlook for Nigeria by 70 basis points to 3.4 percent in 2022 from the initial 2.7 percent projected during the last quarter. This was revealed in the fund’s recently released World Economic Outlook.

This upgrade was hinged on some major parameters such as the increase in oil prices, a positive for Nigeria’s economy. Also, the fund said it expects this to be the major tailwind to boost growth. However, oil prices have rallied from the $78.98 per barrel at the start of the year and remain above $100 per barrel at the moment.

Although some analysts in their views said they are less optimistic about the impact of the elevated oil prices given that local oil production continues to lag production quota and based on the latest OPEC filing, Nigeria’s production volume stood at 1.48mbpd compared to its OPEC approved quota of 1.72mbpd; and as such, oil GDP has remained depressed since 2020. Factors such as routine maintenance and pipeline sabotage have been cited as major factors inhibiting the growth of the oil economy.

In a research note on the projection, FBNQuest Capital Research analysts said, “We are less optimistic about the impact of the elevated oil prices given that local oil production continues to lag production quota. We are less optimistic about private consumption due to the impact of inflation on consumer wallets last year. For 2022, though we expect some level of private investment apathy due to the uncertainty of a pre-election year, sizable government capital expenditure should boost growth. However, we also consider the downside risk posed by the Russia-Ukraine crisis to trade especially. On a balance of factors, we maintain our in-house growth expectation of 2.7 percent for Nigeria.

“Going by PMI data for March, the 54.1 points reading suggests that business conditions have continued to improve although with less tempo compared to February (57.3 points PMI reading). Growth in output, new orders, stock of purchases and employment were observed to be slower in the period. The PMI report also pointed out the presence of cost pressures, cash shortages and price hikes,” they asserted.

Globally, the IMF revised its global growth forecast for 2022 down to 3.6 percent (from 4.4 percent previously), and for emerging market and developing economies to 3.8 percent from 4.8 percent. It also cited several headwinds, including Russia’s conflict with Ukraine, soaring inflation, and COVID-19 lockdowns in China.

According to the fund, the revised growth will be majorly driven by growth recorded in some of the major advanced economies whose growth outlook was revised by the fund to 3.3 percent in 2022. The 3.7 percent growth outlook for the United States, 2.8 percent for the Euro Area such as Germany, France, Italy and Spain will drag this growth as a result of the Russo-Ukrainian impasse while other advanced economies will witness a growth lag to 3.1 percent as projected by the IMF.

Reporting on the regions, the fund revised the growth outlook for the emerging and developing economies to 3.8 percent where the emerging and developing Asia will grow 5.4 percent with the highest output to be seen in India (8.2%), China at 4.4 and 5.3 percent for the ASEAN-5 economies. Also, with the war ongoing in Russia, the IMF said it expects growth in Russia to be negative at 8.5 percent while the economy of emerging European nations’ growth will be tepid at -2.9 percent.

Latin America and the Caribbean’s growth outlook stay revised at 2.5 percent with the Middle East and Central Asia to grow at 4.6 percent, spurred by the positive growth trajectory for Saudi Arabia at 7.6 percent while the emerging markets and middle-income economies and low-income developing countries stay at 3.8 percent and 4.6 percent respectively.

Meanwhile, the fund, however, improved its growth forecast for Nigeria from 2.7 percent to 3.4 percent. The 70 basis points upgrade was the primary driver of a 10 basis points rise in its sub-Saharan Africa growth outlook, which has now been revised upward to 3.8 percent from 3.7 percent; meanwhile, Its growth forecast for South Africa was unchanged.

Speaking on the outlook, Pierre-Olivier Gourinchas, IMF’s chief economist, said, “Well, there is a significant downgrade to our growth projections for the global economy from 4.4 percent as of January to 3.6 percent in our latest update. 0.8 percentage points difference. There are three main reasons for this downgrade. First, the war invasion of Ukraine by Russia is increasing energy and commodity prices around the world and is leading to less output and more inflation. Inflation is higher in most countries and is expected to persist longer. In addition, we have a slowdown of the Chinese economy with more frequent lockdowns due to Omicron that is weighing down and then also elevated price pressures in many parts of the world or leading central banks to tighten monetary policy controls.

According to the IMF’s chief economist, attention will need to be maintained on longer-term goals even as policymakers begin to focus on cushioning the impact of the war and the pandemic. In the fund’s advice to policymakers, Gourinchas added that,

“Well, our advice to policymakers is first, do everything we can to end the war now. Beyond that, we can think about monetary policy, fiscal policy and health policy. For monetary policy, central banks need to act decisively to make sure that inflation expectations remain well-anchored and do not drift away from central bank targets. At the same time, they need to act in a nimble and data-dependent way to support growth and make sure that the hiking cycle that should happen is not going to be disruptive. On fiscal policy, the tradeoff is different. It’s between rebuilding fiscal buffers on the one hand and protecting vulnerable populations that have been hit by the increase in energy and food prices,” he said