Global growth forecast lowered for first time since July 2016
In the same week the World Bank downgraded its economic growth outlook for Nigeria, the International Monetary Fund (IMF) followed, trimming its growth expectations for Africa’s largest economy to 1.9 percent from 2.1 percent last April.
Herder-farmer clashes in Northern Nigeria, which disrupted crop production and led to the slowest growth in agriculture in two decades, was fingered as the main driver of the downgrade, as the IMF joined the World Bank in cutting its growth outlook for Nigeria.
The World Bank this month cut Nigeria’s economic growth expectations for the year to 1.9 percent from an initial forecast of 2.1 percent, also citing sluggish agricultural output. Local investment bank Vetiva, cut its growth forecast to 1.7 percent from 2.1 percent, pointing to “weak consumer demand, a rising cost environment and a slump in agriculture output.”
These factors are tipped to offset the impact of higher oil prices, which has climbed to a four-year high of over $80 per barrel this month.
Growth of 1.9 percent this year means average incomes in Africa’s largest oil producer will contract for the fourth straight year, as population growth has consistently eclipsed economic growth since 2015, according to data compiled by Bloomberg.
The IMF expects the trend to last another four years.
While the country’s population rate has averaged 3 percent in the past decade, economic growth has registered below 2.5 percent since 2015.
Despite a year-on-year increase, the economy slowed to 1.5 percent in the second quarter of 2018 from 1.95 percent in the first quarter, state data agency, the National Bureau of Statistics (NBS) said in August.
Growth in the agriculture sector almost halved in the second quarter, expanding only 1.91 percent compared to 3 percent in the first quarter, as growth in crop production slipped to 1.49 percent in second quarter from 3.45 percent during the first quarter, according to NBS data.
“The economic managers need to carry out growth enhancing policies in the country that will lead to sustainable and inclusive growth,” said Ayodele Akinwunmi, head of research at FSDH Merchant bank.
In a dampener on investor sentiment, the International Monetary Fund also downgraded its global economic growth projections for the first time since July 2016.
Citing escalating trade tensions and stresses in emerging markets, the Washington-based lender cut its global growth forecast for this year to 3.7 percent from 3.9 percent last April.
“At the time of our last World Economic Outlook in April, the world economy broad-based momentum led us to project a 3.9 percent growth rate for both this year and next,” IMF Chief Economist Maurice Obstfeld told reporters Tuesday in Bali, Indonesia, as he explained that developments since then made the Fund’s earlier forecast overoptimistic.
Rather than rising, growth has plateaued at 3.7 percent, according to Obstfeld.
“There are clouds on the horizon. Growth has proven to be less balanced than we had hoped. Not only have some downside risks that the last world economic outlook identified been realized, mother likelihood of further negative shocks to our growth forecast has risen,” Obstfeld added.
If the trade war between the US and China continues, it could take a significant bite out of global growth, according to the fund.
It estimates global output could fall by more than 0.8 percent in 2020 and remain 0.4 percent below its trend line over the long term, in a scenario where President Donald Trump follows through on all his threats, including global duties on cars.
Output could fall by more than 1.6 percent in China and over 0.9 percent in the U.S. next year, according to the IMF’s models.
“There are a few ways that this news can be digested. One is to accept that expecting global growth at a rate of 3.7% in comparison to 3.9% still represents a healthy pace of growth when you consider the severe turbulence that the global economy has faced over the past 10 years,” said Jameel Ahmad, Global Head of Currency Strategy & Market Research at brokerage firm, FXTM.
But on the other side, there are concerning comments from the IMF that a combination of trade tensions and stress in emerging markets is behind the modest downgrade in growth expectations, along with even more worrying comments that the IMF is concerned that global growth might have plateaued, indicates to a degree that there are also reasons for investors to be uneasy about the IMF downgrade.
“For one, the comment that global growth might have plateaued indicates to a degree that current growth rates are as good as the global economy will get. This means that any optimism global growth could peak above 4% over the next few years is ambitious at best,” Ahmad added.