April 17, 2023/Coronation Research

The IMF in its latest World Economic Outlook (WEO) has trimmed its global forecast for 2023 to 2.8% y/y from 2.9% y/y predicted in its January ’23 WEO. For 2024, the growth projection was revised downwards to 3.0% y/y from 3.1% y/y.

The IMF noted that global macroeconomic headwinds continue to persist due to the lingering Russia-Ukraine crisis. However, China’s economy is rebounding after periods of lockdowns which slowed down manufacturing activities.

There were downward revisions in the 2023 growth projections for major economies like the US, whereby growth was revised downwards from 1.4% y/y (in its January WEO) to 1.3% y/y in 2023. This is reflective of the weakened consumer purchasing power and strained investment capacity as inflation remains elevated and monetary policy tightening continues.

Growth in the Eurozone was revised upwards from 0.7% y/y (in its January WEO) to 0.8% y/y in 2023 amid the spillover effects of the Russia-Ukraine crisis and the monetary policy tightening stance employed by the ECB to combat inflationary pressures.

China’s global growth was left unchanged at 5.2% y/y in 2023. This can be attributed to the strong rebound in economic activities following the recent reopening of its economy. The Chinese authorities have implemented various measures such as providing tax relief for businesses, incentivizing the completion and delivery of incomplete real estate projects as well as monetary policy easing. We note that the PBoC has left its policy rate unchanged since August ’22 in a bid to boost economic growth. However, persisting challenges within China’s property sector and global financial uncertainty continue to pose a risk to the forecast.

According to the report, growth for the Russian economy was revised upwards to 0.7% y/y from 0.3% y/y (in its January WEO). We understand that the economy has been supported by elevated crude oil prices despite the sanctions. Looking ahead, the recent OPEC decision to cut oil production should keep oil prices elevated.

The Fund revised its forecast for sub-Saharan Africa to 3.6% (from 3.8%y/y in its January WEO). The relatively weaker outlook reflects tighter financial and monetary conditions. The IMF’s forecast for Nigeria’s GDP growth remained unchanged at 3.2% y/y for 2023 but was raised to 3.0% y/y in 2024. According to the IMF, the forecast reflects the elevated oil price environment which is expected to sustain growth. Meanwhile, our forecast for GDP growth in 2023 is 2.8% y/y. We expect growth to be underpinned mainly by the non-oil sector. The services, agriculture and manufacturing sectors are likely to remain key growth drivers. We also considered oil prices above USD80/b.

Regarding oil price, YTD, Bonny Light has averaged USD84.1/b. Oil price movement has been partly triggered by optimism around demand from China following its full reopening, the recent banking sector volatility and OPEC’s decision to cut oil production from May and Russia’s decision to trim oil production by 500,000mb/d from February until end-2023 .

The IMF projects global oil demand to increase by 2.3% to 101.7mbpd in 2023 vs 99.4mbpd recorded in 2022, largely due to China fully reopening its economy. However, it is worth highlighting that the International Energy Agency expects global oil demand to increase by 1.9mbpb in 2023, with China’s demand alone rising by 900,000 bpd.

The projection for average global inflation has also been trimmed to 7.0% y/y (from 8.7% y/y projected in 2022). This can be partly attributed to the expected moderation in commodity prices (oil and non-oil) due to global recession concerns. Inflation for the Eurozone and China were revised downwards to 5.3% y/y and 2.0% y/y respectively, compared with 5.7% y/y and 2.2% y/y recorded in 2022. The downward revision largely reflects the expected cooling effects of monetary policy tightening on inflationary pressure. Meanwhile, inflation for the US was revised upwards from 3.5% y/y
in 2022 to 4.5% y/y in 2023. Overall, we expect inflation to remain above target for most advanced and emerging economies in 2023.

The Fund projects Nigeria’s inflation at 20.1% y/y in 2023. In our view, we see inflation moderating to 18.5% y/y by end-2023. Our inflation forecast took into consideration positive base effects. However, downside risks such as persistent supply shocks on the back of the ongoing Russia-Ukraine crisis as well as structural issues impacting the cost of doing business, further depreciation of the naira in the parallel market and an uptick in the price of PMS, due to the potential subsidy removal are likely to keep inflation elevated.

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