July 7, 2022/United Capital Research
In the Jun-2022 edition of its Global Economic Prospects report, the World Bank raised its growth forecast for Sub-Saharan Africa (SSA) by 10bps to 3.7%, representing a slowdown from 2021’s 4.2% estimate. Furthermore, the report further revealed that the World Bank forecasts economic growth in the SSA region will average 3.9% in 2023 and 2024. Streamlining to Nigeria, the World Bank appeared to be more bullish after it revised its 2022 growth forecast to 3.4%, from 2.5% previously. On the other hand, it downgraded its growth forecast for other SSA countries (ex-Angola, Nigeria & South Africa) by 40bps. Thus, the upward revision in Nigeria’s output growth was the primary driver of the bank’s apparent bullish stance on SSA.
Despite the upward revision in SSA’s growth projection, it remains significantly below 2021’s output growth level for the region. The reason for the dampened growth expectation is down to surging inflationary pressures expected to push a chunk of the region’s population below the poverty line, especially in countries where vulnerable populations are sizeable and highly dependent on imported food (zooming out, food imports represent one-fifth of total SSA imports), putting a dent in the recovery of post Covid-19 consumer spending. Although commodity exporters in the region stand to benefit from rising commodity prices, growth would be diminished by an increase in prices of necessary inputs such as fuel, fertilizers, and machinery spare parts, with subsequent negative impact of food and energy prices. In addition, the continued hawkish stance of the global monetary authorities restrains access to financing for SSA countries, potentially limiting government intervention.
Zooming in on the bank’s forecast for Nigeria, we believe they are very bullish as we view output growth of 3.4% for Nigeria an ambitious target. The low base of 2020 was the primary support for a 3.4% GDP growth in 2021 and with normalcy returning, we struggle to see Nigeria hitting those heights in 2022. High inflationary pressures will continue to hurt consumer pockets while FX illiquidity will continue to hamper the manufacturing sector. We have a 2.9% output growth forecast for Nigeria in 2022.
