Due to rising inflation and the potential for a technical recession this year, the International Monetary Fund (IMF) has maintained its forecast for Nigeria’s economic growth at 3.4%.
The July World Economic Outlook (WEO) update, which was released Tuesday, outlines the position. The Fund predicts that the country’s growth will slow to 3.2% next year (up from its earlier prediction).
When compared to last year’s growth, which was 3.6%, the IMF’s outlook is a bit pessimistic. The projected annual growth rate of 3.4% is slightly higher than the 1.quarter growth rate of 3.1%.
The Fund is also more optimistic about sub-Saharan Africa (SSA), which is anticipated to increase by 4% through next year and 3.8% this year. The findings mirror the area economy’s performance predictions made in April.
In general, the ongoing Russian invasion of Ukraine, related costs, and high worldwide inflation had an impact on the WEO report.
As a result, the average rate of global growth was reduced by 0.4 percentage points to 3.2% for 2023 and by 0.7 percentage points to 2.7% for the following year.
The unusual energy crisis the Eurozone is experiencing is a significant drag on expectations for global growth. The IMF predicts that the economic bloc’s growth would fall from the 5.4% recorded last year to 2.6% this year and then further to 1.2% the next year.
The situation is considerably worse in Emerging and Developing Europe, which includes Russia and the Ukraine, where growth is predicted to be negative (-1.4%).
An annual negative growth rate of 6% is also possible for Latin America and the Caribbean
The institution expressed worry about how rising interest rates in wealthy nations might affect emerging markets and expressed optimism that these nations would follow suit. It issued a warning about persistent capital flight from emerging nations as a result of rising interest rates.
High inflation, sluggish GDP, and rising borrowing rates have evoked analogies to the 1970s and the first half of the 1980s. Overages from oil exporters, who benefited from increasing energy prices, increased finance for emerging market economy debt markets in the 1970s. Early in the 1980s, central banks tightened regulations to combat excessive inflation, but this resulted in some cases of disorderly external adjustment and debt defaults, particularly in Latin America, the paper stated.
The IMF has a negative outlook on inflation as well, revising its earlier prediction upward to 8.3% for the year. The updated prediction is 140 basis points (bps) higher than the one from April.
While recognizing the need to control persistent inflation, it cautioned against the unnoticed consequences of deflation, adding that “disinflation is more costly than envisaged.”
The Federal Open Market Committee (FOMC), which sets interest rates for the Federal Reserve System, is expected to set a fourth rate this year soon after the release of the report. Analysts anticipate the Fed’s July meeting, which is due to end today, will result in a further 75 basis point increase in interest rates, the second increase of that size this year.
Since 1994, the Committee had not increased its rate by 0.75 percent. The interest rates, which are now at 1.75 percent, have increased by a total of 150 basis points since March. Economists anticipate a sustained aggressive tightening, particularly given that inflation hasn’t slowed and that the Fed has room to act thanks to a strong labor market.