April 20, 2022/CSL Research
Yesterday, the International Monetary Fund (IMF) published its World Economic Outlook (WEO) for April 2022. In the report, the IMF posited that the consequence of Russia’s invasion of Ukraine will cause a significant slowdown in global economic growth in 2022, leading to a revision of its global growth forecast. Based on the report, the global economy is projected to grow by 3.6% in 2022, which is 0.8ppts lower than January’s forecast of a 4.4% growth. Furthermore, based on the report, the growth moderation caused by the war is expected to fuel inflationary pressures, which have become evident across advanced, emerging and developing economies where inflation has been rising and is already igniting a monetary policy tightening response by many countries.
Notably, unlike January’s forecast where the central focus was on the emergence of the Covid-19 Omicron variant and rising inflation, that could induce renewed economic disruptions, leading to a moderation in growth in 2022 compared to 2021, the event of the Russian invasion of Ukraine has undoubtedly increased uncertainty. Russia and Ukraine both have significant standing in the commodity markets with respect to oil, gas, and wheat, among others. Specifically, Russia supplies about 40% of the EU’s natural gas imports, while the remaining 60% is sourced from Norway and Algeria. Likewise, in 2021, Ukraine was the second-largest supplier of grains for the European Union (EU) and a large food supplier for low and middle-income countries in Asia and Africa. Essentially, the longer the Russia-Ukraine conflict, the more the existing supply chain disruptions are amplified.
As we highlighted earlier, IMF’s pessimism is on the back of the economic effects of the war and its far-reaching repercussions. This is reflected in the organisation’s GDP projections for Advanced Economies (AEs), as it now expects AEs to grow by 3.3% y/y in 2022 compared to the 3.9% y/y previously forecasted. Similarly, expectations for Emerging Markets and Developing economies weakened as IMF expects the region to grow by 3.8% y/y in 2022, as against the 4.8% y/y growth previously estimated.
Meanwhile, the gloomy outlook for developing economies did not extend to Nigeria as the IMF improved its 2022 forecast for Nigeria by 0.7ppts to a 3.4% y/y growth compared to 2.7% previously. Given Nigeria’s oil dependency, the increase in oil price bodes well for the economy,which informed the increase in growth prospects. Sadly, with the continued relaxation of OPEC+ oil cut agreements among its member countries which should see an increase in revenue for Nigeria, the perennial issues of vandalism, thefts and terminal shutdowns continue to affect oil production. Also, the benefits associated with the increase in oil price that should accrue to the government’s revenue are erased through subsidy payments. That said, while we agree with the IMF that the economy will grow given the positive correlation between oil price and GDP growth, we believe the growth will come in dribs and drabs. The current inflationary pressures expected to continue should shrink the consumer wallet further.
