Nigeria’s economy is likely to contract by 1.8 per cent this year, the International Monetary Fund (IMF) restated yesterday in its global economic outlook released in Washington.
Meanwhile the nation’s currency, naira, continued its downward trend against the United States dollars yesterday as the interbank spot exchange rate rose by N2.42 to N294.57 per dollar. Last week the naira depreciated by N10.23 as the interbank spot exchange rate rose sharply from N282.02 the previous week to N292.25 per dollar at the close of business on Friday. Hence that naira had depreciated by N12.65 against the dollar since Friday July 8th, 2016. The depreciation is driven by scarcity of dollars in the interbank market as well as the decision of the Central Bank of Nigeria to allow market forces determine the exchange rate of the naira.
The sharp fall in global prices since 2014 has led to a prolonged economic crisis since the crude sales make up around 70 percent of government revenue.
The IMF’s projection for Nigeria this year, contained in its World Economic Outlook update, is down from the 2.3 percent growth it foresaw in its April forecast. It now forecasts 1.1 percent growth for 2017, down from 3.5 percent in the April forecast.
Gross domestic product contracted by 0.36 percent in the first quarter of the year and the central bank’s governor has said a recession appears to be imminent.
“In Nigeria, economic activity is now projected to contract in 2016, as the economy adjusts to foreign currency shortages as a result of lower oil receipts, low power generation, and weak investor confidence,” the IMF said.
Militant attacks on oil and gas facilities in the southern Niger Delta energy hub have cut oil production, pushing what was Africa’s largest oil producer behind Angola and threatening the country’s main revenue source. Last week the budget minister told lawmakers that the country’s first quarter revenues reached only 55 percent of what the government had targeted. He said the attacks on oil facilities were largely to blame.
The IMF also cut its forecasts for global economic growth this year and next as the unexpected U.K. vote to leave the European Union creates a wave of uncertainty amid already-fragile business and consumer confidence. “The Brexit vote implies a substantial increase in economic, political, and institutional uncertainty, which is projected to have negative macroeconomic consequences, especially in advanced European economies,” according to the IMF’s World Economic Outlook Update released yesterday.
“Brexit has thrown a spanner in the works,” said Maurice Obstfeld, IMF Chief Economist and Economic Counsellor. And with the event still unfolding, the report says that it is still very difficult to quantify potential repercussions.
The economies of the United Kingdom (U.K.) and Europe will be hit the hardest by fallout from the June 23 referendum, which prompted a change of government in Britain. Global growth, already sluggish, will suffer as a result, putting the onus on policy makers to strengthen banking systems and deliver on plans to carry out much-needed structural reforms. In particular, policymakers in the U.K. and the European Union (EU) will play a key role in tempering uncertainty that could further damage growth in Europe and elsewhere, the IMF said. It called on them to engineer a “smooth and predictable transition to a new set of post-Brexit trading and financial relationships that as much as possible preserves gains from trade between the U.K. and the EU.”
Global growth remains muted, blow to UK growth
The global economy is projected to expand 3.1 percent this year and 3.4 percent in 2017, according to the IMF (see table). Those forecasts represent a 0.1 percentage point reduction for both years relative to the IMF’s April World Economic Outlook. The U.K. economy will expand 1.7 percent this year, the IMF said, 0.2 percentage point less than forecast in April. Next year, the nation’s growth will slow to 1.3 percent, down 0.9 point from the April estimate and the biggest reduction among advanced economies. For the euro area, the Fund raised its forecast by 0.1 point this year, to 1.6 percent, and lowered it by 0.2 point in 2017, to 1.4 percent.
Had it not been for Brexit, the IMF was prepared to leave its outlook for this year broadly unchanged as better-than-expected euro area performance offset disappointing U.S. first-quarter growth. The IMF also had been prepared to raise its outlook for 2017 slightly, by 0.1 percentage point, on the back of improved performance in a few big emerging markets, in particular Brazil and Russia.
