New Telegraph

IMF upgrades Nigeria’s 2020 growth forecast

…says economy now to shrink by 4.3%
…cuts growth forecast to 1.7%

Although it continues to project a deep recession for the global economy this year due to the effects of the COVID-19, the Inter-national Monetary Fund (IMF) is now forecasting a relatively less severe contraction for Nigeria in 2020 than it predicted in June. According to its October World Economic Outlook report released yesterday, the Fund has upgraded the country’s economic growth in 2020 to -4.3 per cent from -5.4 per cent forecast in June.

It has, however, revised down its 2021 growth forecast for Nigeria by 0.9 per cent to 1.7 per cent. In its June forecast, the Fund had projected that the Nigerian economy would grow by 2.6 per cent next year. Citing, “somewhat less dire outcomes in the second quarter, as well as signs of a stronger recovery in the third quarter…” the IMF is also predicting a less severe contraction for the global economy in 2020. Global growth, according to the IMF report, is projected to be -4.4 per cent, an upward revision of 0.8 percentage points compared to its -4.9 per cent forecast in June.

Similarly, IMF has upgraded growth projection for sub-Saharan Africa in 2020 to -3.0 per cent, a 0.2 per cent improvement on the -3.2 per cent contraction it had forecast for the region in June. The Fund is, however, predicting a moderate rebound of 5.2 per cent next year for the global economy, which is less than the 5.4 per cent it forecast in June.

It is equally expecting sub-Saharan Africa to grow by 3.1 per cent in 2021 as against its 3.4 per cent June prediction for the region. Significantly, at 1.7 per cent, the IMF’s growth projection for Nigeria, Africa’s largest economy, in 2021, is the lowest of all the major economies listed by the Fund in its latest World Economic Outlook report.

The continent’s second largest economy, South Africa, the report said, is forecast to rebound from eight per cent contraction in 2020 to grow by 3.0 per cent next year. The report stated that while the economies of all emerging market and developing economy regions are expected to shrink this year: “Regional differences remain stark, with many countries in Latin America severely affected by the pandemic facing very deep downturns, and large output declines expected for many countries in the Middle East and Central Asia region and oil-exporting countries in sub-Saharan Africa affected by low oil prices, civil strife, or economic crises.”

IMF Chief Economist and Director of the Fund’s research department, Gita Gopinath, said oil-exporting countries are grappling with the health and economic impact of the COVID-19 pandemic and the impact of low oil prices. “They have been hit by the health crisis and they have been hit because they are oil exporters, which had a collapse and more importantly, they just don’t have the resources that advanced economies have to deal with this crisis,” Gopinath said.

She further stated that while many emerging markets are able to borrow at record levels in foreign currency this year relative to previous years, “because we don’t have a financial crisis at this point,” these debts will not be enough to address the devastating impact of the crisis, adding that there is a need for continued international support. Gopinath noted that this support could be in terms of concessionary financing, aid and debt relief and restructuring.

“There are going to be developing and low-income economies that would need debt relief and, in some cases, restructuring of debt to make sure they have the space to do the spending that they need,” she said. According to the IMF Chief Economist, “this crisis is far from over.

Employment remains well below pre-pandemic levels and the labour market has become more polarized with low-income workers, youths, and women being harder hit. “The poor are getting poorer with close to 90 million people expected to fall into extreme deprivation this year.

The ascent out of this calamity is likely to be long, uneven, and highly uncertain. It is essential that fiscal and monetary policy support are not prematurely withdrawn, as best possible.” She further said: “This crisis will likely leave scars well into the medium term as labour markets take time to heal, investment is held back by uncertainty and balance sheet problems, and lost schooling impairs human capital.

After the rebound in 2021, global growth is expected to gradually slow to about 3.5 per cent into the medium term. The cumulative loss in output relative to the prepandemic projected path is projected to grow from $11 trillion over 2020-21 to $28 trillion over 2020-25.

This represents a severe setback to the improvement in average living standards across all country groups.” Besides, IMF is warning that global recovery is not assured while the pandemic continues to spread. As Gopinath put it: “There remains tremendous uncertainty around the outlook with both downside and upside risks.

The virus is resurging with localized lockdowns being re-instituted. If this worsens and prospects for treatments and vaccines deteriorate, the toll on economic activity would be severe, and likely amplified by severe financial market turmoil.”

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