By Ibrahim Apekhade Yusuf
There are widespread fears about the fate of the economy across the globe, Nigeria inclusive. The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva raised the first alarm penultimate Sunday, first day of the New Year.
According to her, one-third of the global economy may slip into recession in 2023. The New Year, she said, is going to be “tougher than the year we leave behind.”
She made this known on the CBS Sunday morning news programme, Face the Nation, on Sunday. “We expect one-third of the world economy to be in recession. Even countries that are not in recession, it would feel like a recession for hundreds of millions of people,” she said.
The IMF boss argued that for the first time in 40 years, China’s growth in 2022 is likely to be at or below global growth.
“For the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative, the impact on the region will be negative, the impact on global growth will be negative,” she said.
The new year is going to be “tougher than the year we leave behind,” as the major economies of the world – the US, Europe and China – experience weakening activity, she said.
“Why? Because the three big economies – the US, EU and China – are all slowing down simultaneously,” she argued.
In October, the IMF cut its outlook for global economic growth in 2023, considering the ripple effect of the Russia-Ukraine war as well as inflation pressures and the high interest rates engineered by central banks across the world.
Ms Georgieva said that China, the world’s second-largest economy, is likely to grow at or below global growth for the first time in 40 years, amid uncertainties over the surge in Covid-19 cases.
She added, however, that the US economy is standing apart and may avoid the outright contraction that may hit a significant part of the global economy. “(The) US is most resilient…may avoid recession. We see the labour market remaining quite strong,” she said.
In October, the IMF predicted a slower growth for the Nigerian economy in 2022, changing its forecast from 3.2 per cent in July to 3.0 per cent.
In its World Economic Outlook for October 2022 titled, “Countering the Cost-of-Living Crisis”, it projected a growth contraction for sub-Saharan Africa from 3.8 per cent to 3.6 per cent.
The International Monetary Fund (IMF)’s Economic Counsellor, Pierre-Olivier Gourinchas was also on the same page with Ms Georgieva.
In a blog post accompanying the fund’s October World Economic Outlook, more than a third of the global economy is headed for contraction between 2022 and 2023.
“This year’s shocks will re-open economic wounds that were only partially healed post-pandemic. The worst is yet to come and, for many people 2023 will feel like a recession,” Gourinchas said.
In its report, the IMF trimmed its 2023 global GDP forecast to 2.7 per cent, 0.2 points down from July expectations as Gourinchas warned that misjudging the persistence of inflation could prove detrimental to future macroeconomic stability ‘by gravely undermining the hard-won credibility of central banks.’
At the start of the year, the global economy was projected to extend the strong post-pandemic recovery of 6.1 per cent in 2021 with a baseline growth rate of 3.6 per cent in 2022.
However, this bullish outlook was dented by the multifaceted negative spillovers from the ongoing war in Ukraine and aggressive monetary policy tightening by global systemic central banks targeted at curbing the runaway inflation.
On the back of these developments, the IMF in its October 2022 World Economic Outlook (WEO) report downgraded its global growth projection for 2022 to 3.2 per cent, its third downgrade since the war in Ukraine began in February.
In their outlook for 2023, Proshare in its global macroeconomic review and outlook, revealed that things looked pervasively slow.
In their analysis, Proshare stated that global GDP growth remains fragile following the impact of the war in Ukraine, noting that both advanced and developing economies are being affected by the impact of the war.
In addition, China’s zero COVID-19 policy, if sustained, will slow the country’s growth and therefore have a ripple effect on consumer demand and exports, especially in view of China’s contribution to global output and trade.
“With inflation already causing a cost-of-living crisis in several countries, a recession could trigger protests and unrests among poor and low-income earners. Central Banks will therefore need to tread cautiously in implementing a tight monetary policy stance to minimise the likelihood of a recession.”
The performance of the global economy will be hinged on the war in Ukraine and its continued impact on global commodity prices and trade. Oil producers may continue to benefit from high commodity prices in 2023, while oil importers will bear much of the cost of energy inflation, which could further slow economic growth and recovery.
Inflation has become a major source of concern for many countries. The war in Ukraine triggered a sharp increase in crude oil and gas prices, which led to high food prices and energy costs across countries. In the United Kingdom, the inflation rate rose to a 40-year high of 10.1% in July 2022. In Germany, inflation rate rose to 10% in September 2022, reaching an all- time high since German reunification.
While government’s across countries are implementing fiscal support and subsidies to ameliorate the situation for businesses and citizens, these measures do not appear sufficient in taming inflation. Monetary authorities have also raised interest rates to tackle rising prices, and this raises the possibility of constraining aggregate demand growth, and therefore could trigger a recession in some countries.
The chief executive officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said he expects Nigeria’s debt profile to hit N70 trillion this year.
Dr Yusuf, a former director general of Lagos Chamber of Commerce and Industry (LCCI), explained that, “in all probability, the deficit will be much bigger by year end because of the track record of revenue under performance over the last couple of years.
“We are also likely to see an acceleration of Central Bank of Nigeria (CBN) financing of the fiscal deficit given the revenue performance trajectory. The public debt stock is growing and currently at N42 trillion.
He noted that a number of issues need to be addressed to achieve the nation’s fiscal sustainability aspiration, saying, government owned enterprises managing huge economic assets need to justify the value of assets at their disposal; and oil revenue performance should be much better given the prevailing global oil price.
He pointed out that the foreign exchange policy regime is adversely impacting the business environment and needs to be urgently addressed, saying weak private sector performance would naturally affect non-oil tax revenues.
He also said there is a need for budget reforms, adding that the budgetary appropriations must reflect urgent national economic priorities.
According to World Bank Lead Economist for Nigeria, Alex Sienaert, Nigeria’s debt servicing is expected to gulp 123.4 per cent of the federal government’s revenue in 2023.
“Debt servicing has surged over the past decade and is expected to continue increasing over the medium-term, crowding out productive spending” he stated noting that the size of public debt in Nigeria will continue to be of concern due to the rising debt service-to-revenue ratio with the situation expected to be dire in 2023.
Inflation in Nigeria rose to a 17-year high at over 21 per cent with global inflation expected to peak at 9.5 per cent in 2022 before dropping to 4.1 per cent by 2024. However as central banks across the world have adopted a tightening stance, hiking benchmark interest rates across board, it is expected that global growth will slow down in 2023.
Back home in Nigeria, the combined effect of the year-long structural challenges, policy mismatch, and negative externalities have begun to taper the recovery momentum recorded in 2021. In the third quarter of 2022, Nigeria’s GDP growth slowed to 2.3 per cent from 3.1 per cent and 3.5 per cent in the first and second quarter of 2022, respectively.
Asides global developments, Nigeria’s economy had slowed as public debt piled up amidst the exchange rates crisis.
According to analysts at Afrinvest West Africa, Nigeria’s economic managers failed to optimise its human capital potential and favorable oil prices. We expect the factors to drag because of the political transition and the time it would take policy reforms (if any) by the incoming administration to manifest gains. Hence, we estimate a 3.3 per cent. GDP growth for 2022 and project a 3.0 per cent growth for 2023.
Although fundamentals have been resilient throughout these shocks, this year’s constructive growth backdrop is not expected to persist in 2023. Fundamentals will likely deteriorate as financial conditions continue to tighten and monetary policy turns even more restrictive. The economy is also likely to enter a mild recession, with the labor market contracting and unemployment rate rising to around 5%.
“Consumers with a cushion of savings from lockdown have mostly exhausted their post-COVID excess cash and for the first time are getting hit by a broadening negative wealth effect from all assets simultaneously — whether that’s housing, bonds, equities, alternative/private investments or crypto,” said Dubravko Lakos-Bujas, Global Head of Equity Macro Research at J.P. Morgan.
“This proverbial snowball should continue to gain momentum next year as consumers and corporates more meaningfully cut discretionary spending and capital investments.”
