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IMF Trims Global Growth but Maintains Nigeria’s Growth Outlook – Coronation Merchant Bank

The IMF trimmed its global forecast for 2022 to 3.2% y/y from 3.6% y/y in April

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IMF - Investors King

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
in 2023.

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.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

2025: The End of Gas Flaring

The Federal Government through the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has inaugurated a 12-member ‘Gas Flare Commercialization Program Team’ to manage the nation’s gas flaring.

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gas flaring

The Federal Government through the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has inaugurated a 12-member ‘Gas Flare Commercialization Program Team’ to manage the nation’s gas flaring.

According to Engineer Gbenga Komolafe, the Chief Executive of NUPRC, gas flaring in the oil gas industry has been a continuous menace that needs to be eradicated because of its adverse effect on the people’s health, the Environment and also a major resource waste and value erosion to the country.

Gbenga mentioned that to monetize gas resources is to take a positive step toward securing energy security, especially in this period of global energy transition. He said as a nation, Nigeria needs to ensure it harnesses every available gas resource in other to create value.

He declared that the NUPRC is resuming the procedure of issuing flare sites to competent technical companies, after a complete bidding process.

This process is crucial and important in respect of the direction of the federal government’s policy to ensure every gas resource is properly developed for national development.

He laid emphasis that the wasteful disposal of natural gas is not only hazardous with serious health and environmental consequences but also a waste of resource and value to Nigeria.

In addition to this, he stated that the FG declared the period 2021 to 2030 as the DECADE OF GAS, a period which the country must change direction from oil centered exploitation to a gas-focused industrial development.

Although the World Bank has set 2030 as the target year to end gas flaring, Nigeria has set the country’s deadline tp 2025.

President Muhammadu Buhari made a commitment towards the Paris Agreement during the COP26 Leaders’ Summit to achieve Net Zero carbon emissions by 2060,” he said.

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Economy

China Reaffirms Commitment to Maintaining Cooperation With Africa

Wu- Peng, has reaffirmed China’s commitment to maintaining cooperation with Africa

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China Nigeria

The director general of the ministry of foreign affairs of China, Wu- Peng, has reaffirmed China’s commitment to maintaining cooperation with Africa.

Wu-Peng disclosed this at a meeting held with African journalists under the auspices of the China Africa Press Centre (CAPC) in June 2022 in Beijing.

Quoting the president of China, Xi Jinping, Wu-Peng said China will work hand in hand with African countries to implement linked programs in the next three years”.

According to Wu-Peng, this includes programs related to the medical and health sector, poverty alleviation, agricultural growth and promoting investments.

We’re still fighting to contain Covid-19 since the outbreak of the pandemic, China has so far provided about 260 million doses of vaccines to 55 African countries and African Union,” the Director General said.

He also mentioned that China had also made provision for about 120 batches of emergency supplies to African countries and they all have diplomatic relations with China and also contributed to Africa’s early recovery from the Covid-19 pandemic.

China has already constructed the African CDC in Addis Ababa and it will be completed in 2023.

The other program I would like to make mention is the agricultural sector. When FOCAC was held in 2021, there was no Russia-Ukraine crisis, yet we focus and invested in Agriculture in Africa.

The reason been, we believe in the potential of Agriculture in Africa, the growth and development is huge, there are still lots of arid land in Africa, Wu-Peng stated.

Unfortunately, Africans still have to import grapes from the outside which costs a lot of currency and actually damages Africa’s international balance sheet.”

He said that the failure to prioritize agriculture could obstruct fast economic growth in Africa, suggesting that more should be done through Public Private Partnership (PPP) to ensure food security.

The director general laid emphasis on the need for proper implementation of the report from the FOCAC meetings to bring to life the realization of set goals and objectives.

“This does not make sense, you have lands, you have labor forces, I think we just need the right policy to promote price investments in industrial large scale farms to improve our food security.

Why this is has become very important is due to the Ukraine crisis, food prices globally surged and going forward, we must finish construction of the project in the nearest future.

African governments have already noticed developments of agriculture is a huge priority to deal with the crisis of hike in food prices, we want Africas countries to have up to date plans from FOCAC meetings and the findings of the results.

“Usually, when we have FOCAC meetings we just produce documents, we need more concrete actions, we must be focused,” the director general said.

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Economy

Inflation Rises to 17 Year High in Nigeria

Inflation rate, grew at a 19.64% rate in July, the highest since September 2005 when inflation peaked at 24.32%

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consumer prices

Prices of goods and services rose to a 17-year-high in Africa’s largest economy Nigeria in the month of July, the National Bureau of Statistics (NBS) reported on Monday.

The Consumer Price Index (CPI), which measures the inflation rate, grew at a 19.64% rate in July, the highest since September 2005 when inflation peaked at 24.32%. This was 1.04% higher than the 18.60% recorded in June 2022.

On a monthly basis, inflation expanded by 1.817%, an increase of 0.001% from 1.816% filed in June 2022.

As expected, food inflation also grew by 0.99% from 21.03% year-on-year in July 2021 to 22.02% in July 2022. According to NBS, the increase in the food sub-index was caused by increases in prices of Bread and cereals, Food products n.e.c, Potatoes, yam and other tubers, meat, fish, oil, and fat.

On a month-on-month basis, the food inflation rate in July was 2.04%, this was a 0.01% insignificant decline compared to the rate recorded in June 2022 (2.05%). This decline is attributed to a reduction in the prices of some food items like Tubers, Maize, Garri, and Vegetables.

Rising economic uncertainties amid a series of policy changes like the increase in duty on imported raw materials, high electricity tariffs,  fuel, etc needed to manufacture the necessary food items are responsible for the persistent increase in inflation.

Also, the extended decline in the value of the Nigerian Naira against its global counterparts has made foreign goods or imported goods expensive for Nigerians. Therefore, manufacturing companies are now passing the increase to final consumers already struggling with low earnings and a high unemployment rate.

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