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IMF lowers Nigeria’s growth prospects

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By Abiodun Okunloye

Amid pessimism and tension, the IMF has downgraded Nigeria's economic prospects.

In place of the growing unpredictability around the world, the International Monetary Fund (IMF) has lowered its projection for economic growth in Nigeria by 0.2 percent, bringing the new estimate down to 3.2 percent. According to the World Economic Outlook (WEO) October update that was announced recently, it estimated that the country’s gross domestic product (GDP) would expand at a rate of 3.2 percent this year and then gradually decrease to three percent in 2023. Both projections are twenty basis points (bps) below what was predicted for July.

However, in July, the Institution decided to keep the projection that they had made in April for this year at 3.4 percent. The Gross Domestic Product of the country increased at a rate of 3.4% in the first quarter of the year (Q1 ’22), but that rate dropped to 3.1% in the second quarter (Q2 ’22). The average performance thus far falls short of the growth forecast for the year that was provided by the Federal Government.

The global economy has been obscured by several factors.

More so, the growth rate for sub-Saharan Africa was also lowered by the IMF, from 3.8 percent to 3.6 percent. Meanwhile the IMF projects that the global economy, which is being hampered by the crisis in the cost of living as well as geopolitical tensions, will expand by 3.2 percent this year and 2.7 percent next year, a significant drop from the six percent increase that was recorded in the previous year.

Current economy of the entire world is at present going through a variety of challenging and chaotic times. The condition is obscured by a number of factors, including inflation that is higher than it has been in several decades, tightening financial circumstances in most regions, Russia’s invasion of Ukraine, and the persistence of the COVID-19 pandemic. As policymakers work to bring inflation back down to its target level, they are normalizing monetary and fiscal policies, which provided unprecedented assistance during the pandemic. This has the effect of reducing demand.

The future economy depends on accurate monetary policy.

According to the IMF, a growing percentage of economies are experiencing a deceleration of growth or a decline. The future of the world economy remains precarious, depending on a number of factors such as the accuracy with which monetary policy is adjusted, the outcome of the conflict in Ukraine, and the likelihood of additional supply-side disruptions in countries like China as a result of pandemics. The world economy is projected to fall from 6% in 2021 to 3% in 2022, and 2.7% in 2023. This dismal economic profile, which includes considerable slowdowns for the greatest economies, is the worst seen since 2001, except for the global financial crisis and the severe phase of the COVID-19 pandemic.

A risk to the forecast that was described as “unusually large” was highlighted in the report. It pointed to the war between Russia and Ukraine as one of the threats battling with growth, along with the normalization of monetary policy and elevated inflation. It issued a warning that monetary policy could make an error in calculating the appropriate level of monetary tightening to bring down inflation. More so, Economists also warned that an excessive tightening of monetary policy by central banks might push the global economy into a deeper decline than was anticipated, which has the potential to cause a severe crisis.

Inflation control should be the priority, says Jerome Powell.

Speaking on the same, Jerome Powell of the Federal Reserve System which led the central bank chiefs, insisted that inflation control should be the priority because they have paid little attention to it. He added that during this week’s World Bank/IMF Annual Meetings, central bankers from throughout the world are facing challenging problems about maintaining the modest growth recorded after the COVID-19 disruption while also preventing excessive inflation. So many more central banks are entangled in monetary tightening, which has stimulated de-risking worldwide. As a result, the safe haven currency and the pound sterling are nearly at parity, as measured by the U.S. Dollar Index, which has reached a level not seen since the early 2000’s. The dollar was trading at 0.97 euros and $1.1 U.S. at the time of publication.

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IMF: Website

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