Nigeria’s growth expectations stay on trajectory amid economic headwinds –Analysts


Against a backdrop of a modestly improved global economic outlook with a 0.2 percentage point upgrade to 3 percent for 2023, Nigeria’s growth trajectory remains cautiously positive, a report from Cowry Research has said.

The International Monetary Fund has maintained its projection of 3.2 percent growth for Nigeria in 2023, consistent with its earlier forecasts from January and April.

However, a slight deceleration is anticipated, with growth expected to dip to 3.0 percent in 2024.

This projection comes in the midst of persistent economic headwinds that could potentially impede Nigeria’s growth ambitions.

Despite a commendable 3.10 percent year-on-year growth in 2022 and a continued positive trajectory with 2.31 percent year-on-year growth in Q1 of 2023, uncertainties loom large on the macroeconomic horizon. Several key factors contribute to this uncertainty.

Financial experts at Cowry Research while analyzing the outlook said the recent removal of subsidies introduces an element of volatility, particularly impacting sectors sensitive to consumer demand.

The asset management company added that the liberalization of the foreign exchange market introduces an additional layer of complexity, potentially exposing the economy to exchange rate fluctuations and associated trade implications.

“Persistent security challenges threaten to disrupt supply chains and deter investor confidence, exerting a drag on overall economic activities. Commodity Price Volatility: Escalating commodity prices, a global phenomenon, have contributed to Nigeria’s inflation reaching a multi-year high of 22.79 percent in June 2023. In response, the central bank has assumed a more hawkish stance, resorting to policy rate hikes to anchor inflation expectations. The COVID-19 health crisis is officially over, and supply-chain disruptions have returned to pre-pandemic levels,” Cowry said.

Economic activity in the first quarter of the year proved resilient, despite the challenging environment, amid surprisingly strong labour markets.

“Financial experts at Cowry Research while analyzing the outlook said the recent removal of subsidies introduces an element of volatility, particularly impacting sectors sensitive to consumer demand”

Energy and food prices have come down sharply from their war-induced peaks, allowing global inflation pressures to ease faster than expected. And financial instability following the March banking turmoil remains contained thanks to forceful action by the US and Swiss authorities.

Under the IMF’s baseline forecast, growth is likely to slow to 3 percent in 2023 and 2024 from 3.5 percent as global inflation expectations slow to 6.8 percent in 2023 from 8.7 percent in 2022 and further deceleration in global inflation to 5.2 percent next year.

Supporting the expected slowdown in inflation across the globe, growth in advanced economies is expected to ease to 1.5 percent in 2023 from 2.7 percent initially expected in 2022 and will likely remain in a subdued manner to 1.4 percent in 2024.

To this assertion for the advanced economies, the Eurozone, though still reeling from energy price shocks due to the previous year’s geopolitical events, is poised for a significant deceleration, acting as a drag on overall advanced economy growth.

By contrast, growth in emerging markets and developing economies is still expected to pick -up with year-on-year growth accelerating from 3.1 percent in 2022 to 4.1 percent this year and next year. (The corresponding annual growth, shown on the chart below, is 4 percent for 2022 and 2023 and 4.1% for 2024.).

This average, however, masks significant differences between countries, with emerging and developing Asia growing strongly at 5.3 percent this year, while many commodity producers will suffer from a decline in export revenues.

According to Cowry Research, it is evident that Nigeria’s growth prospects are entangled in a complex web of internal and external challenges.

“Policymakers and economic stakeholders need to remain vigilant and proactive in addressing these headwinds to ensure the country’s continued economic resilience and stability in the face of a volatile global economic landscape,” the analysts said.