In its latest World Economic Outlook (WEO), the IMF trimmed its global forecast for 2022 to 3.2% y/y from 3.6% y/y in April. For 2023, the growth projection was revised downwards from 3.6% y/y to 2.9% y/y. Higher inflation across advanced and emerging economies worsened by the Russia-Ukraine crisis has triggered a wave of monetary policy tightening at a faster pace than expected. Furthermore, a slowdown in China reflects the COVID-19 outbreaks and lockdowns, contributing to global supply chain disruptions and declining domestic consumption.
There were downward revisions in the 2022 growth projections for major economies like the US, Eurozone and China. Growth in the US was revised downwards from 3.7% y/y to 2.3% y/y in 2022. This reflects the erosion of household purchasing power due to elevated inflation and the impact of additional monetary policy tightening this year. In addition, Eurozone growth was revised downwards from 2.8% y/y to 2.6% y/y, largely reflecting the spillover effects from the Russia-Ukraine crisis.
China’s growth was revised downwards from 4.4% y/y to 3.3% y/y in 2022. If this materialises, it would be China’s slowest growth in more than four decades (that is, excluding growth posted following the initial COVID-19 crisis in 2020). The revision is largely due to possibilities around increased COVID-19 outbreaks and lockdowns, particularly in core manufacturing and trading hubs.
According to the report, the Russian economy is estimated to have contracted by less than previously projected in Q2 ’22. This is due to the resilience of domestic demand, despite the sanctions. The economy has also been supported by elevated crude oil prices and other non-energy exports. The IMF now expects Russia to contract by -6.0% y/y in 2022, compared with -8.5% in April’s WEO.
We understand that global oil demand is projected to increase to 99.4mbpd in 2022 from 96.9mbpd recorded in 2021. However, this is still below pre-pandemic levels. Oil price assumptions based on the futures markets for the Fund’s basket of three crude blends (UK Brent, Dubai Fateh, and West Texas Intermediate crude oil), shows a decline of -2.7% to USD103.9 in 2022 from USD106.8/b in April’s WEO and a decline of -1.6% to USD91.1/b
The projection for global inflation has also been revised. For advanced economies, the IMF projects average inflation at 6.6% y/y compared with 5.7% y/y in April’s WEO. This revision is partly driven by expectations around upticks in gas prices, particularly during the winter months.
Furthermore, a complete cessation of exports of Russian gas to the Eurozone would significantly increase inflation through higher energy prices. This week, the European Union approved an emergency plan to reduce gas demand. Expectations are that lower consumption will ease the impact on gas prices if Russia halts gas exports.
For emerging economies, the IMF projects average inflation at 9.5%y/y compared with 8.7% y/y in April’s WEO. This is on the back of upticks in energy and food prices. The Russia-Ukraine crisis has been the principal driver of global food price inflation.
In particular, the price of grains, such as wheat have seen significant upticks in price. The central banks of major advanced economies have responded to rising headline inflation with policy rate hikes. In the US, the FOMC raised the target range for the federal funds rate by 75bps to 2.25% – 2.5% at its July ‘22 meeting.
Similarly, the European Central Bank raised 3 key interest rates by 50bps during its July ‘22 meeting, the first increase since 2011. The Bank of England also raised its main bank rate by 25bps to 1.25% during its June ‘22 meeting, a fifth consecutive rate hike. Given the trend in inflation, the general expectation is that policy rates are set to rise further in coming months.
Among emerging economies, China remains an outlier. In July, the people’s bank of China held steady its key rates in a bid to support economic recovery in the wake of COVID-19 outbreaks. The one-year loan prime rate (LPR) was left unchanged at 3.7%; while the five-year rate, a reference for mortgages, was maintained at 4.45%. We note that China’s economy grew by 0.4% y/y in Q2 ’22 compared to 4.8% y/y recorded in Q1 ‘22.
Expectations of more monetary policy tightening have come at a time when the fiscal positions for many emerging economies are already stretched.
The rate hikes have contributed to financial market volatility and risk repricing for emerging market sovereign debt. According to the report, 60% of low-income countries are at a high risk of government debt distress. One example is Sri Lanka which temporarily defaulted on its external debt obligation in April ‘22. Burdened by soaring food and fuel costs, the country is currently in talks with the IMF to secure a bailout package.
The IMF’s forecast for Nigeria was unchanged at 3.4% for 2022 but was raised to 3.2% for 2023. This is in line with our forecast for 2022, and it reflects the elevated oil price environment. Bonny Light has increased from USD80.1/b at the start of the year and has remained above USD100/b.
Other upside risks include sustained growth in select sectors, improved harvest, electioneering activities and a small fiscal boost towards end-year.
However, downside risks to the forecast still revolve around the trickledown effects of the Russia-Ukraine crisis. Also, the presence of the fuel subsidy regime (estimated to be N4trn in 2022) and current low oil production levels undermine the expected benefits of higher oil prices. According to data from the Nigerian Upstream Regulatory Commission, oil production in June ‘22 stood at 1.40mbpd.
This is below OPEC’s approved quota of 1.7mbpd and the FGN’s 2022 budget assumption of 1.6mbpd. Furthermore, the price surges in deregulated petroleum products (diesel, aviation fuel, kerosene), and agric-commodities like wheat have led to increases in operational costs for businesses and strain in household wallets.
Nigeria’s Natural Gas Production Declines Despite N250bn Intervention Fund
Despite the injection of a N250 billion intervention fund into the gas sector, Nigeria witnessed a downturn in natural gas production last year, raising concerns about the effectiveness of the financial stimulus.
The Energy Institute, in collaboration with KPMG, unveiled an industry report revealing a notable drop of 4 billion cubic feet meters in Nigeria’s natural gas production between 2021 and 2022.
While Nigeria’s gas production demonstrated consistent growth from 39 billion cubic feet meters in 2012 to 49 billion cubic feet meters in 2020, the trajectory abruptly shifted to a decline, reaching 45 billion cubic meters in 2021 and further slipping to 40 billion cubic meters last year.
The Federal Government’s intervention included a N250 billion fund, facilitated through the Central Bank of Nigeria, with N130 billion earmarked for 15 selected companies for the construction of Compressed Natural Gas (CNG) conversion centers.
This initiative, part of the National Gas Expansion Program (NGEP), aimed to promote CNG as the preferred fuel for transportation and Liquefied Petroleum Gas (LPG) for domestic cooking, captive power, and small industrial complexes.
The 15 recipient companies, including prominent names like Dangote Oil Refinery, Nipco Gas Ltd, and Greenville Liquefied Natural Gas Company, received a combined N130 billion.
However, despite this financial injection, the natural gas production figures tell a different story.
Chinedu Okoronkwo, President of the Independent Petroleum Marketers Association of Nigeria, expressed dissatisfaction with the exclusion of his members from the loan, stating that inclusion would have accelerated the conversion of over one million vehicles to CNG models.
The Senate Committee on Gas, chaired by Jarigbe Agom Jarigbe, has summoned the 15 companies to provide progress reports on the projects funded by the intervention.
As Nigeria aims for substantial investment in the gas value chain, these revelations raise questions about the efficacy and impact of financial interventions in the country’s critical sectors.
Experts Urge Swift Government Action on Nigeria’s Untapped N3 Trillion Logistics Sector
Experts at the Courier and Logistics Management Institute conference in Lagos have emphasized the critical importance of the overlooked logistics, courier, and transport sector in Nigeria, valued at over N3 trillion.
During the event themed “Logistics Solutions and National Infrastructure Development,” the CLMI Executive Chairman, Prof. Simon Emeje, highlighted the urgent need for the federal government to prioritize this sector, which remains relatively untapped on a global scale.
Emeje underscored the sector’s significance, stating, “Any country that does not pay attention to logistics, courier, and the transport sector cannot survive.
The government must not ignore this sector because it is the bedrock of any economy.”
The logistics, courier, transport, and management industry boasts an average asset worth over N3 trillion, offering substantial potential for job creation.
Emeje emphasized that commerce is crippled without effective logistics, illustrating the importance of the sector in facilitating trade, enhancing the supply chain, creating jobs, and propelling economic growth.
Despite its undeniable importance, the Nigerian logistics sector faces hindrances such as infrastructural deficits and weak government policies, preventing it from reaching its full potential.
Emeje called for immediate attention to address these challenges and unlock the sector’s capacity to create millions of employment opportunities for Nigerian youth.
Former Minister of Communications, Barr. Adebayo Shittu, urged the institute to draft a comprehensive proposal for government adoption, offering assistance in facilitating engagement.
Both Shittu and Prof. Emeje called on the Federal Government to establish a dedicated ministry to foster an enabling environment for Courier and Logistics Management, drawing parallels to the recognition given to the entertainment industry.
President Tinubu Seeks Senate Approval for $8.6 Billion and €100 Million Borrowing Plan
President Bola Tinubu’s administration has formally requested the approval of the Nigerian Senate for a borrowing plan totaling $8.6 billion and €100 million.
The request was presented to the Senate through a letter read during the plenary by the Senate President, GodsWill Akpabio.
According to the letter, the proposed funds are integral to the federal government’s 2022-2024 external borrowing plan, previously sanctioned by the administration of former President Muhammadu Buhari.
Tinubu clarified that the projects earmarked for funding through this loan cut across diverse sectors, emphasizing their selection based on rigorous economic evaluations and their anticipated contributions to national development.
The letter highlighted, “The projects and programs in the borrowing plan were selected based on economic evaluations as well as the expected contribution to the socio-economic development of the country, including employment generation, and skills acquisition.”
The specified sectors earmarked for development include infrastructure, agriculture, health, water supply, roads, security, and employment generation, along with financial management reforms.
The borrowing plan’s comprehensive approach aims to address critical needs and propel the nation’s progress.
President Tinubu emphasized the urgency of the Senate’s approval, stating, “Given the nature of these facilities, and the need to return the country to normalcy, it has become necessary for the Senate to consider and approve the 2022-2024 external abridged borrowing plan to enable the government to deliver its responsibility to Nigerians.”
This appeal follows previous successful requests, including the National Assembly’s approval of an over $800 million loan for the National Social Safety Network Programme in August.
Also, the assembly greenlighted the 2022 Supplementary Appropriations Act of N819 million to provide palliatives to Nigerians, mitigating the impact of fuel subsidy removal.
As the deliberations unfold, the Senate’s decision on this substantial borrowing plan will play a pivotal role in shaping Nigeria’s economic trajectory.
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