IMF Adjusts Nigeria’s Growth Expectations

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February 19, 2024/Coronation Research

In its latest World Economic Outlook (WEO), the IMF revised its global growth forecast for 2024 upward at 3.1% y/y, from 2.9% y/y predicted in its October ’23 WEO. However, the IMF maintained its global growth projection for 2025 to 3.1% y/y. The global growth projection remains below the historical (2000-2019) average of 3.8% reflecting restrictive monetary policies, elevated inflation, and constrained fiscal support, amid a high debt burden.

Major economies such as the United States (US) and China witnessed upward revisions in growth projection. The US growth was raised to 2.1% y/y from 1.5% y/y (in its October ’23 WEO) for 2024. This upward revision reflects a positive spillover effect of the stronger-than-expected growth outcome in 2023 on the back of resilient domestic spending and a tight labor market. Similarly, growth in China was revised upward to 4.6% y/y from 4.2% y/y (in its October ’23 WEO) for 2024. This upgrade is primarily due to stronger-than-expected growth for 2023 supported by fiscal stimulus.

Conversely, GDP growth was revised downward for the Eurozone to 0.9% y/y from 1.2% y/y (in its October ’23 WEO) for 2024. This can be attributed to weaker-than-anticipated growth in 2023 and stringent financial conditions. Meanwhile, the GDP growth projection for the United Kingdom remained steady at 0.6% y/y for 2024, with the adverse effects from high energy prices gradually subsiding.

Russia’s growth forecast was revised upward to 2.6% y/y from 1.1% y/y (in its October ’23 WEO) for 2024. This revision was largely due to stronger-than-expected growth on the back of improved domestic demand, government expenditure, and wage growth.

The projection for average global inflation is 5.8% y/y for 2024 with an expectation of a further decline to 4.4% y/y in 2025. This is indicative of the cooling effects of monetary policy tightening across advanced and emerging economies. Based on IMF projections, we anticipate a swifter decrease in headline inflation rates among advanced economies compared to those in developing economies driven by tight monetary policies, easing labor markets, and the passthrough effects of ongoing energy prices.

We understand that moderations in headline inflation have prompted central banks of select economies to slow down on further policy rate hikes. For instance, the US Federal Reserve may consider rate cuts in the first half of 2024 if macro-indicators align with expectations. However, the UK and ECB are likely to maintain a restrictive policy stance to tackle inflationary pressure.

The growth forecast for sub-Saharan Africa in 2024 was revised downwards to 3.8% y/y from 4.0% y/y (in its October ’23 WEO). This revision can be attributed to downward growth revision for South Africa which is largely due to escalating logistics constraints in the transport sector.

For Nigeria, IMF slightly revised its 2024 growth forecast to 3.0% y/y from 3.1% y/y (in its October ’23 WEO) for 2024. The revision reflects persistent inflationary pressure, restrictive monetary olicies, and exchange rate pressure.
Nigeria’s headline inflation has steadily recorded upticks (currently at 29.90% y/y as of January ‘24). Our end-year inflation forecast (base case) is 23.5% y/y. The downward pressure in global inflation across economies could lessen the impact of imported inflation on local prices. On the flip side, potential escalation of the ongoing geopolitical tension could exacerbate supply chain disruptions, driving commodity prices, and exerting pressure on purchasing power.

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