IMF Downgrades Nigeria’s Economic Growth Prospect

The global economy’s future health rests critically on the successful calibration of monetary policy, the course of the war in Ukraine, and the possibility of further pandemic-related supply-side disruptions

By Elizabeth Morgan On Oct 12, 2022

The International Monetary Fund (IMF) has downgraded Nigeria’s economic growth prospect by 0.2 percentage points to 3.2 per cent in the face of rising uncertainty across the globe.

In its October World Economic Outlook (WEO) update released yesterday, the Fund projected the country’s gross domestic product (GDP) to grow at 3.2 per cent this year and slope downward to three per cent in 2023. Both estimates are 20 basis points (bps) behind July forecasts.

The Institution had, in July, retained the April forecast for this year at 3.4 per cent. The country’s GDP grew at 3.4 per cent in the first quarter of the year (Q1 ’22) but slowed to 3.1 per cent in the second quarter (Q2 ’22).

The average performance so far is short of the Federal Government’s projected growth for the year.

IMF also cut sub-Saharan Africa’s growth from 3.8 to 3.6 per cent, while the global economy, which is strained by the cost-of-living crisis and geopolitical tensions, is projected to expand by 3.2 per cent this year and 2.7 per cent next year, a steep dive from six per cent increase recorded last year.

“The global economy is experiencing a number of turbulent challenges. Inflation higher than seen in several decades, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Normalisation of monetary and fiscal policies that delivered unprecedented support during the pandemic is cooling demand as policymakers aim to lower inflation back to target.

“But a growing share of economies are in a growth slowdown or outright contraction. The global economy’s future health rests critically on the successful calibration of monetary policy, the course of the war in Ukraine, and the possibility of further pandemic-related supply-side disruptions, for example, in China. Global growth is forecast to slow from six per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic and reflects significant slowdowns for the largest economies,” IMF said.

The report underpinned an “unusually large” risk to the outlook. It pointed to monetary normalisation, elevated inflation and the Russia-Ukraine war as some of the risks contending with growth. It warned that monetary policy could miscalculate the right stance of tightening to cool inflation.

Economists have warned that excessive tightening by central banks could plunge the global economy into deeper-than-expected contraction that is capable of causing a major crisis.

But the central bank chiefs, led by Jerome Powell of the Federal Reserve System, have paid little attention, insisting that inflation control is the priority.

This week at the ongoing World Bank/IMF Annual Meetings, central bankers across the globe face hard questions on striking a balance between sustaining the modest growth recorded after the COVID-19 disruption and curbing excessive inflation. A larger number of central banks have been locked in monetary tightening, which has stoked de-risking across the globe.

Consequently, the U.S. Dollar Index, a measure of the strength of the dollar against other paired currencies, has hit a level not seen since the early 2000s, leading to near parity between the safe haven currency and the pound sterling. As at press time, the dollar was trading at 0.97 euro and $1.1.