18/5/2016/CBN
Executive Summary
Global output growth remained weak in the second half of 2015 as evidenced by the decline in projected output growth to 3.1 per cent, lower than the 3.4 per cent recorded in 2014.
The decline was attributed to the general slowdown in economic activities in emerging markets and developing economies, China’s rebalancing of economic activities away from investment and manufacturing to consumption and services, declining oil and other commodity prices and the gradual tightening of US monetary policy.
Nigeria’s output growth declined to 2.47 per cent in the review period. Broad money supply increased, while the gross official reserves fell. The average exchange rate depreciated at the inter-bank and BDC segments. Year-on-year inflation rate edged up slightly to 9.6 per cent in the review period.
In the second half of 2015, average interest rates fell in response to the liquidity situation in the economy. Broad money grew by 5.90 per cent. Also, narrow money (M1) increased by 24.14 per cent at end-December 2015, as against the 5.25 per cent decline at the end of the first half of the year.
The Monetary Policy Rate (MPR) was reduced to 11.00 percent and the symmetric corridor of 200 basis points around the MPR was made asymmetric at + 200 basis points and -700 basis points for standing lending and deposit facilities, respectively. In reaction, rates at the inter-bank funds market fell in the review period.
These measures were to encourage banks to lend to the real sector of the economy. The intervention measures of the CBN were also sustained to enhance inclusive growth in the real sector. The quality of assets in the banking sector declined marginally in the second half of 2015 compared to the position at end-June 2015.
The decline in asset quality was attributed to the unfavourable macroeconomic environment in the review period. Also, capital adequacy weakened during the period. This was attributable to the fall in the level of banks’ general reserves.
A stress test of the banking industry revealed that, generally, it remained relatively resilient, although some banks were sensitive to credit concentration and interest rate risks which did not pose systemic threats to the industry.
The Bank continued to process customers’ complaints with a view to enhancing public confidence in banks. The payments system witnessed significant developments with the implementation of the Bank Verification Number (BVN) Scheme.
The Treasury Single Account (TSA), an initiative aimed at reducing the cost of government borrowing, better management of cash resources, and harmonized government receipts and payments, was fully implemented.
Generally, the global economy is expected to recover slightly in 2016, despite the prospect of rising interest rates in the US and economic slowdown in China.
However, the recovery could be dampened by possible decline in commodity prices which would further constrain growth in commodity exporting countries.
In Nigeria, the NBS projects a slight recovery in 2016. Economic activities are expected to pick up as the effects of government reform policies gradually impact on the real sector. In the foreign exchange market, the spread between the interbank and BDC rates is expected to narrow, as stability is restored in the market.
Macroeconomic Developments and Financial System Stability
Global Economic and Financial Developments
Output
Global output growth in 2015 remained weak. According to the IMF World Economic Outlook for 2015, the estimated output growth of 3.1 per cent was 0.3 per cent lower than the 3.4 per cent recorded in 2014.
The decline was attributed to the general slowdown in economic activities in emerging markets and developing economies, China’s rebalancing of economic activities away from investment and manufacturing to consumption and services, declining oil and other commodity prices and the gradual tightening of US monetary policy.
In advanced economies, the 2015 output growth estimate was revised downward to 1.9 per cent from the earlier projection of 2.1 per cent, slightly above the 1.8 per cent recorded in 2014.
The modest rebound in output reflected primarily a strengthening of recovery in the euro area and a gradual return to growth in Japan. Other contributory factors include declining oil prices, accommodative monetary policies and currency depreciation.
The pickup in output is expected to continue in 2016, particularly in North America. Output growth in advanced economies is projected at 2.1 per cent in 2016, which is 0.2 per cent higher than in 2015.
It is, however, anticipated that this projected recovery could be dampened by downside risks. Output growth in the US was expected to increase slightly from 2.4 per cent in 2014 to 2.5 per cent in 2015, despite strong second quarter growth of 3.9 per cent.
The marginal rise in output growth in the US economy was attributed to decline in oil prices, fall in the unemployment rate, weakened inflationary pressures, dollar appreciation, and increased household spending and industrial activities.
In the euro area, output growth was 1.5 per cent in 2015, compared to 0.9 per cent in 2014, reflecting sustained recovery supported by stronger private consumption, lower oil prices and easing financial conditions that outweighed a weakening in net exports. In 2016, the euro area is expected to expand by 1.7 per cent.
In the UK, growth weakened from 2.9 per cent in 2014 to 2.2 percent in 2015 and was estimated to remain at the same rate in 2016. In Japan, output growth rose to 0.6 percent in 2015 from its zero-growth level in 2014. This reflected the rebound in domestic spending arising from quantitative and qualitative policy measures adopted during the review period.
Output growth in emerging markets and developing economies was estimated at 4.0 per cent in 2015, compared to 4.6 per cent recorded in 2014. The slowdown in output growth reflected difficult external conditions, sharp rise in financial market volatility, declining commodity prices and downward pressure on many of their currencies. Other factors were low capital inflows and the effect of the lift-off of US policy rates from the zero lower bound.
Growth in China slowed to 6.9 per cent in 2015 from 7.3 per cent in 2014, reflecting, among others, the decline in investment growth and weak exports. In Latin America, the economic downturn in Brazil was deeper than expected, and with declining commodity prices, the momentum continued to weaken in other countries in the region. Output growth in Brazil decelerated to -3.8 per cent in 2015 from 0.1 per cent in 2014.
Mexico’s growth of 7.5per cent in 2015 was lower than expected, reflecting slower US growth and a drop in oil production. In Russia, output growth declined from 0.6 per cent in 2014 to -3.7 per cent in 2015, owing largely to declining commodity prices and the political turmoil in the region.
The output growth in India, at 7.3 per cent in 2015, the same as in 2014, was supported by a strong expansion in the manufacturing and services sectors. The Middle East and North Africa (MENA) region witnessed a decline in output growth from 2.8 per cent in 2014 to 2.5 per cent in 2015, owing to low oil prices and political instability in several countries.
Also, output growth in sub-Saharan Africa (SSA) in 2015 was lower than projected, as it declined to 3.5 per cent from the 5.0 per cent recorded in 2014. This was largely attributed to the fall in crude oil prices, which affected oil exporting countries like Nigeria and Angola.
GDP growth in South Africa was estimated at 1.3 per cent in 2015 compared with 1.5 per cent in 2014, while in Nigeria it was estimated to decline to 3.01 per cent in 2015 from 6.3 per cent in 2014.
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